When to Obtain GST Registration for Sole Proprietorship Firm in India?

A sole proprietorship is a business model with least compliance requirement that is managed by a single person. Although being an unregistered entity, the question arises when and how the GST Registration shall be obtained by the proprietorship firm.

Which businesses need to register under GST?

The Goods and Service Tax Law provides specific conditions based on turnover or specified business activities for compulsory GST registration. If turnover in given financial year of any business entity in India exceeds the threshold limit prescribed, it must obtain registration under Goods and Service Tax Laws. If the business meets any of the below mentioned criteria, it requires to register under GST mandatorily.

  • If the total business turnover exceeds ₹ 20 Lakh in the concerned financial year (Threshold for North-eastern States is ₹ 10 Lakh)
  • Casual taxable person / Non-Resident taxable person
  • Agents of a supplier & Input Service Distributor (ISD)
  • Electronic Commerce Aggregator
  • Person providing supply through E-commerce platform

Aggregate income of all sole proprietor businesses

Many sole proprietors mistakenly believe that all their sole proprietor businesses registered under different trading names are separate entities. Thus, they do not aggregate the turnover of all businesses in determining their GST registration liability. Under the law, all businesses under a sole proprietor’s name are considered as a single entity. This means a sole proprietor is liable to register for GST if the total taxable turnover of all his businesses and income from all his trade and professions exceeds threshold limit. However, the levy of tax and collection will be as per the activities or goods of each business.

Voluntary GST Registration

A business, that is not required to apply for GST Registration under compulsory criteria, may choose to register on voluntary basis if the business makes taxable supplies. Even if one has not started making any supplies but intend to make any of the above supplies, one may also register on voluntary basis. If one does not have firm intentions and plans to make any of the above-mentioned supplies, one should not register for GST. Even under the voluntary registration, the proprietor is required to comply with all the requirements from invoice making to return filing similar to registrant under compulsory criteria.

In absence of specified registration for sole proprietorship, the business would get identified legally with the help of this registration. Although voluntary registration burdens with additional compliances, here are the benefits that reduces burden to least:

  • Legal recognition as supplier of goods or services
  • Organised accounting of taxes with disclosure and transparent business transactions
  • Authorisation to collect taxes and issue tax invoices
  • Able to claim Input Tax Credit (ITC) of the GST paid to the suppliers (subject to norms)
  • Reduction in cost due to benefits of ITC
  • Eligible to pass the credit of GST collected to subsequent suppliers
  • Higher compliance rating under GST for regular compliance that increases business goodwill and attracts more consumers

Due to above-mentioned benefits and the requirements raised by the suppliers or concerned party, many businesses obtain GST Registration in India. However, if the voluntary registration does not benefit the supplier or the supplier cease to deal with taxable goods, it can apply for surrender of GST, when required, which again makes him a normal supplier.

GST Registration Application

The registration application will be made in the name of sole proprietor himself. Upon registration, all the businesses under proprietor’s name will be registered, including those one may start in future. The name of business may be mentioned in the legal name. The documents and proof required are filed in name of the proprietor himself. From PAN Card to address proof, all the documents of the proprietor are filed as the business does not hold separate identity. To obtain register under GST, following documents are to be filed along with the application:

  • Passport size photograph of proprietor
  • PAN Card of the proprietor
  • Aadhar Card of the proprietor
  • Address Proof of place of Business
  • Bank Account Statement / cancelled cheque

HSN code or SAC code are required to be submitted considering the activities of the firm. The application will be filed online in form GST REG – 01 at the common portal. The application can be filed with either DSC or EVC system. Upon successful filing Part A and B, ARN will be generated. Upon verification of documents and application, the department may issue registration certificate in Form GST REG – 06 or ask for further clarification.

Once the GST registration certificate is issued by the department, the registrant shall issue taxable invoices as applicable to the consumer. Further, based on type of registration, applicable returns should be filed before due date to score higher compliance rating. The input tax credit for the GST paid can be claimed from the date of GST Certificate and allotment of GSTIN, subject to provisions.

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