Goods and Services Tax (GST) is one of the first things new online sellers worry about. Do I need to register? What do I put on an invoice? Why are there three kinds of GST? This guide explains the basic ideas in plain language so you can have a more confident conversation with your chartered accountant.
Please note: this is general information, not tax or legal advice. GST rules, rates and registration limits change from time to time and depend on your products, your state and how you sell. Always confirm your situation with a chartered accountant or a GST practitioner, and check the official GST portal for current rules.
What GST is, in one paragraph
GST is a tax on the supply of goods and services in India. As a registered seller, you collect GST from your customers on what you sell, and you pay it to the government. You can usually reduce what you pay by claiming credit for GST you have paid on your own business purchases, such as raw materials, packaging or services. This is called input tax credit.
Do you need to register?
Whether you must register depends on several things, including your turnover, whether you sell goods or services, whether you sell to customers in other states, and whether you sell through online marketplaces. There are turnover limits below which some businesses do not have to register, but the limits differ by type of business and state, and the rules for online and inter-state selling have their own conditions. These have also changed over the years.
So rather than relying on a number you read online, ask your chartered accountant: "Given what I sell, where I sell, and my expected turnover, do I need to register, and is there any benefit in registering voluntarily?"
Some points that often come up in that conversation:
- Selling to other states. Online stores naturally get orders from across India, and inter-state sales can affect registration requirements.
- Selling on marketplaces. Large online marketplaces typically require sellers to have a GSTIN, and they generally collect a small tax at source (TCS) from sellers' payouts. Selling through your own website works differently, so ask your CA how each applies to you.
- Voluntary registration. Some businesses register even when not required, for example to claim input tax credit or to sell to businesses who want GST invoices. It also brings filing responsibilities, so weigh both sides.
- Composition scheme. A simpler scheme exists for some small businesses, with its own conditions and limits on how and where they can sell. Ask whether it suits you.
CGST, SGST and IGST: why three?
This is the part that confuses most people, but the basic idea is simple. It depends on where you are and where your customer is.
- Customer in the same state as you (intra-state sale): the GST is split into two equal halves: CGST (Central GST) and SGST (State GST). For example, at a total GST rate of 18%, the invoice shows 9% CGST and 9% SGST.
- Customer in a different state (inter-state sale): the whole amount is charged as IGST (Integrated GST). At an 18% rate, the invoice shows 18% IGST.
The total tax the customer pays is the same either way. Only the label and where the money goes changes. Union territories have their own version (UTGST) in place of SGST.
For an online store, this means the tax split on each invoice depends on the shopper's delivery address. UpMinutes works this out for you: GST invoices show CGST and SGST or IGST based on the shopper's state.
HSN codes and GST rates
Every product falls under an HSN code (Harmonised System of Nomenclature), a standard classification number. For services, a similar system called SAC is used. The HSN code determines which GST rate applies to your product.
A few things to know:
- Different products carry different GST rates, and some items are exempt. Rates for particular items are revised from time to time, so check the current rate for each of your products.
- Similar-sounding products can fall under different codes. For example, rates can differ based on the material, price band, or whether a food item is packaged and labelled. Ask your CA if you are not sure.
- GST invoices usually need to show HSN codes; how many digits depends on your turnover and the current rules.
In UpMinutes, you set an HSN code and GST rate per product, and these appear on the invoice automatically.
What goes on a GST invoice
A tax invoice generally needs details such as:
- Your business name, address and GSTIN
- A unique, consecutive invoice number and the date
- The customer's name and address (and GSTIN if they are a registered business)
- The place of supply (the customer's state)
- Description, HSN code, quantity and value of each item
- Taxable value, GST rate, and the amount of CGST, SGST or IGST
- The total
Your CA can confirm the exact list that applies to you. The main thing is to issue invoices consistently for every sale, including WhatsApp and phone orders, so your records are complete.
Prices: inclusive or exclusive of GST?
For shoppers buying for themselves, prices are usually shown inclusive of GST, meaning the price on the product page is what they pay (apart from any delivery charge). The invoice then shows how much of that price is tax. Decide your approach, and make sure your prices still leave you a margin after GST.
Remember that delivery charges, gift wrapping and similar extras may also attract GST. Ask your CA how to treat them.
Returns you will need to file
Registered businesses file regular GST returns on the GST portal. The common ones are GSTR-1, which reports your sales, and GSTR-3B, a summary return in which you pay the tax due. There is also an annual return for many businesses. How often you file can depend on your turnover and the scheme you are in. Late filing usually attracts late fees and interest, so keep track of due dates.
Many small sellers have their CA or a GST practitioner file returns for them. Your job is to give them clean records.
Keeping good records
Good records make GST much less stressful:
- Keep all sales invoices, numbered in order.
- Keep purchase bills with the supplier's GSTIN, so you can claim input tax credit.
- Record refunds and cancelled orders properly, with credit notes where needed.
- Match payments received in your bank and payment gateway against orders.
- Keep fee invoices from your payment gateway, courier and software providers, as these often include GST you may be able to claim.
Your online store helps here because every order is recorded with its invoice. If you take orders on WhatsApp or by phone, put them through the store too, so nothing is missing. See selling on WhatsApp and Instagram.
Questions to ask your chartered accountant
- Do I need to register for GST now, given what and where I sell?
- Would voluntary registration or the composition scheme suit me?
- What are the correct HSN codes and GST rates for my products?
- How should I treat delivery charges, discounts and free gifts for GST?
- Which returns do I file, and how often?
- What records do you need from me each month?
In short
GST becomes much less daunting once you understand three ideas: register if your situation requires it, charge CGST plus SGST within your state and IGST outside it, and keep clean invoices and records. Then let a professional confirm the details.
UpMinutes creates GST invoices with the right split for each order and the HSN code you set for each product. Our plans start from ₹500 a month including 18% GST, with no commission on sales; see the pricing page, or start a free 14-day trial.