The number of micro, small, and medium enterprises (MSMEs) with Goods and Services Tax (GST) registration is set to rise after the Central Board of Indirect Taxes and Customs (CBIC) asked its officials to relax scrutiny for such businesses, according to two people aware of the development. MSMEs contribute around 30% of India’s GDP.
CBIC’s move comes after MSMEs raised concerns about excess and non-uniform scrutiny in the registration process during stakeholder consultations with the MSME ministry and CBIC, the people said.
After the meeting, CBIC asked its registration officials to reduce physical verification and complete the process in seven days if the business is not found to be risky during the common analysis.
“After the consultation, CBIC has issued guidelines to its officials to make the registration process easier for businesses. MSMEs are likely to be beneficiaries of these directions,” said one of the persons cited above.
Businesses with an annual turnover of ₹40 lakh for goods and ₹20 lakh for services are required to register for GST and obtain a  GST Identification Number (GSTIN).
No standard procedure
According to a copy of the CBIC order dated 17 April, which Mint has reviewed, businesses said GST officers had sought additional documents along with the GST REG-01 form, the first step in registering for GST. These documents were not a part of the list of documents to be appended with the form, they said.
“It is noted that varied practices are being followed by the officers in respect of verification of documents and details provided in FORM GST REG-01. It has also been observed that while processing the application, avoidable clarifications are being sought by the officers, leading to delay in getting registration as well as rejection of applications,” the CBIC order said.
These clarifications were related to things like proof of principal place of business, constitution of business, and identity details of the authorised signatory, the order said.
“While on one hand there is a need to prevent registration of fraudulent firms created for passing on input tax credit (ITC) without any underlying supply, on the other hand, there is a need to ensure that genuine applicants seeking registration are not unduly harassed,” read the order.
‘Seek minimum documents’Â
Now, officers have been told to seek the minimum number of documents required for GST registration. For instance, to prove that an entrepreneur is starting a business on a property owned by them, GST officers will only seek the latest property tax receipt, municipal khata copy, or copy of the electricity bill, and any one these is enough for proof, said the order.
For businesses that operated from rented premises, a copy of the rent or lease agreement along with a copy of the property tax receipt, municipal khata copy or electricity bill copy is sufficient, it added.
In cases where the GST officer has sought a valid clarification in an applicant’s registration, the applicant has seven days to respond, and the GST officer must accept or reject the application within seven days of receiving the clarification, the order said.
Skewed GST contributions
The contribution of various types of businesses to GST revenue is highly skewed, according to data released by the government seven years after GST was implemented.
It showed that as of June 2024, publicly listed companies, which comprised about 0.5% of taxpayers, contributed a little over 34% of GST revenue, while proprietorships, which comprised about 80% of taxpayers, contributed just 13.3%, and partnerships, which comprised 10% of taxpayers, contributed 7.31%.
India’s 6.4 crore MSMEs are mostly proprietorships or partnerships.
The streamlining of GST registration is likely to make the process easier for such companies and increase their contribution to GST revenue, said Vinod Kumar, president of India SME Forum, an industry association. “But the implementation needs to be comprehensively followed across states. There are issues faced by MSMEs in selling their goods and services between states,” he said.
“While the CBIC has taken a progressive step through this circular, its full implementation effectiveness would be enhanced through complementary circulars from state GST authorities. A synchronised approach across central and state jurisdictions would help achieve the intended objective of a streamlined registration process. We look forward to aligned directives from state authorities to ensure uniform implementation of the circular,” he added.
Hurdles for small businesses
Mint reported in March that while registering for GST as a freelancer or small business owner seems simple on paper, it is much more complicated in reality. That’s because GST officers often ask for additional allied registrations, such as shops and establishment licences, MSME Udyam certificates and no-objection certificates, among other things, though these are not mandated by law.
This makes the process tricky for sole proprietor businesses, such as freelancers or those running an inventory-free e-commerce platform, as they may not even qualify for some of these certificates or licences.
Also, standard operating procedures related to GST registration are not well defined, and the on-ground practices followed vary from jurisdiction to jurisdiction, Ranjeet Mahtani, partner, Dhruva Advisors told Mint at the time. “Consequently, the documentation requirements vary depending on the GST officer handling the case.” This means applicants will only know what extra paperwork is needed once the officer raises an enquiry, causing unexpected delays.
“These practical challenges often lead to confusion, delays and additional compliance burdens,” an tax expert, told Mint at the time.
