5 Common GST Traps to Avoid for Small Businesses

The first common GST trap that small businesses fall into is failing to register for GST when required. GST registration is mandatory for businesses that have an annual turnover of INR. 20 Lacs or more. If your business turnover is less than INR. 20 Lacs but you want to claim back GST credits, you can still register for GST voluntarily. Failing to register for GST when required can result in costly penalties.

To avoid this trap, you need to make sure that you are aware of your GST registration requirements. You can easily register for GST online through the ATO website. Make sure to keep track of your annual turnover and register for GST if it exceeds INR. 20 Lacs.

The second common GST trap is submitting incomplete or inaccurate GST returns. You are required to lodge a GST return each quarter even if you did not make any sales or purchases. An incomplete or inaccurate GST return can lead to penalties and interest charges.

To avoid this trap, you need to make sure that your GST return includes all the relevant information. This includes all sales and purchases that occurred during the quarter, the GST charged and paid, and any adjustments made. Make sure to double-check your calculations before submitting your GST return.

The third common GST trap for small businesses is failing to charge GST correctly. The GST rate is currently 10%, and you need to charge GST on taxable sales. However, certain goods and services are exempt from GST, and some sales are taxed at a reduced rate. Failing to charge GST correctly can result in penalties and fines.

To avoid this trap, you need to make sure that you understand the GST rules and apply them correctly. You can find more information on the ATO website about when to charge GST and what goods and services are exempt from GST. Make sure to apply the correct GST rate to your sales to avoid penalties.

The fourth common GST trap for small businesses is misunderstanding GST exemptions and special rules. Even though some goods and services are exempt from GST, they may still be subject to special rules. For example, if you're a small business that sells fresh food, you may be eligible for special concessions under the GST rules. Misunderstanding GST exemptions and special rules can result in underpayment or overpayment of GST.

To avoid this trap, you need to make sure that you understand the special rules that apply to your business. You can find more information on the ATO website about the GST rules that apply to specific industries. Make sure to apply the correct exemptions and concessions to your sales to avoid penalties.

The fifth common GST trap for small businesses is not keeping proper records. You are required to keep accurate records of all GST-related transactions, including sales and purchases, for at least five years. Failing to keep proper records can result in penalties and fines.

To avoid this trap, you need to make sure that you keep accurate and up-to-date records of all your GST-related transactions. You can use accounting software to keep track of your sales and purchases, and you should make sure that you keep all your receipts and invoices. Make sure to keep your records for at least five years to comply with the GST rules.