Multiple GST registration and cross charging

Multiple GST registration and cross charging

Author- Tanvi Thapliyal

What Is GST & Its Registration

• GST is charged at each step of the production process, but it is supposed to be returned to everyone involved in the production process except the end consumer.
• GST is charged on the value addition at every step of the process of making something or giving a service.
• It is charged where it is used instead of where it comes from.
• GST is made up of three different parts:

• Businesses that make more than40 Lakhs (for goods) and Rs. 20 lakhs (for services) are required to register for GST and pay taxes on their taxable goods and services.
• Taxable people and taxable people who don't live in the country.
• People who work for a wholesaler and an input service distributor (ISD).
• People who pay their taxes through the reverse charge method.
• Those who run or collect e-commerce sites and sell goods or services under their own brand name .

Advantages of Signing Up for GST:

• Once you register for GST, you are legally recognised as a business that sells things or services.
• Businesses that are registered can get a tax credit for the tax they paid on the things they bought, which can help their cash flow.
• Makes sure that tax rules are followed, which helps people avoid fines.
• Businesses that are registered can be more competitive than businesses that aren't registered because they can give their customers tax refunds.

How To Become A GST Registrant

1. As per section 25(1) of the Central Goods and Services Tax Act, 2017,every person who is liable to obtain GST registration needs to obtain separate registration in each operational State/ union territory. Meaning thereby that separate GST registration for each place of business established in a different state/ union territory.
2. Proviso to section 25(2) of the Central Goods and Services Tax Act, 2017, the person having multiple places of business in a single State/ Union territory can also obtain separate registration for each such place of business.
3. Section 25(4) of the Central Goods and Services Tax Act, 2017 –

• A person who has obtained more than one registration (whether in the same state/ union territory or in a different state/ union territory)
• Then, all such establishments of the person will be treated as establishments of ‘distinct persons’.
• supply of goods and/ or services between distinct person is treated as supply under GST and accordingly the transaction attracts GST

1. As per Rule 11 of the CGST Rules, 2017, each type of business must register separately.
2. Rule 11 says that a person with more than one type of business in a state or union region can get a separate registration for each type of business, as long as they meet certain requirements.
3. It's important to know that a "business vertical" is a separate part of a company that sells a single good or service (or a group of related goods or services) and faces different risks and returns than other business verticals.

Conditions for Registering More Than One Name Under Rule 11:

1. The companies must work in different business verticals, which means they can't be doing the same kind of business.
2. It is not required to get separate applications for each type of business.
3. Because each registration is separate, an input tax credit that is offered to one business vertical cannot be used to lower the tax liability of another business vertical.

Other Important Rules for Multiple Registrations:

What Is The Need Of Cross-Charging?

Cross-charging is mostly needed for two reasons:

1. Compliance with the Legal Structure:Each GSTIN is seen as a different entity by the GST law framework. So, when two entities with different GSTINs trade things or services with each other, even if they are part of the same corporate group, it is considered a supply and GST must be paid.
2. Use of Input Tax Credit (ITC):Businesses can properly account for the input tax credit when they cross charge. The company that receives the goods or services can claim ITC on the GST that was paid. This keeps the tax credit chain tight and stops any possible breaches. This is very important for keeping the GST system transparent, since GST paid on inputs can be used to offset GST received on outputs.

Let Us Understand Cross-Charging With An Example

• The corporate offices of XYZ Corporation are in Mumbai, Maharashtra. This is also where the company's central IT department is located. All of the company's branches in India get IT help and services from this department. These include making software, keeping systems running, and managing the IT infrastructure.
• XYZ For Karnataka, there is a branch in Bangalore. For Tamil Nadu, there is a branch in Chennai.XYZ New Delhi Branch in New Delhi
• The IT department in Mumbai gives services to branches in different states. Under the GST law, these deals are seen as the provision of services.
• In order to follow GST rules, the offices in Mumbai must send bills to each branch for the IT services they provide. These bills must include GST at the correct rate.
• The cost of IT services for each office is set by the Mumbai headquarters. Let's say the value of the services is:
• INR 100,000 for the branch in Karnataka, 80,000 for the branch in Tamil Nadu, and 120,000 for the branch in Delhi.
• Each office is charged for the IT services by the Mumbai headquarters, which sends them GST invoices. IT services are subject to 18% GST.

• GST 18% of INR 100,000, which is INR 18,000 for karnataka branch.
• GST 18% of 80,000 INR is 14,400 INR for the Tamil Nadu Branch.
•  GSTFor the Delhi branch, 18% of INR 120,000. This comes to INR 21,600.

• The offices in Mumbai need to include these supplies in its GSTR-1 (outward supplies) form and pay the government the right amount of GST.
• Each office that receives these services must claim the GST paid on them as an input tax credit on their GSTR-3B returns. This lowers the amount of GST they have to pay.

Cross Charging & Input Service Distributor 

1.Meaning-

S.NO.	CRITERIAS	CROSS CHARGING	INPUT SERVICE DISTRIBUTOR
	APPLICABILITY	This rule usually applies when a business has separate GST registrations in different states or when different types of businesses in the same state have separate GST registrations.	ISD can be used by companies with more than one unit or branch that provide centralised services like IT support, administration, or finance, and need to share input tax credits among these units.
	METHOD	In cross charging, GST is charged for goods or services from one registration or business area to another. The person who received the goods can then claim an input tax credit (ITC) for the GST that was paid, as long as the costs were used for business purposes.	The tax bills for the input services utilised by the business as a whole are received by the ISD, which then allots the tax credits to the appropriate units or branches. These credits are subsequently used by the receiving units to reduce their GST obligations.
	COMPLIANCE	In order to cross-charge, tax invoices must be sent between the necessary registrations, GST must be calculated correctly, and reporting and payment requirements for GST must be met.	The ISD must provide its recipient units with a document that details the allocation of input tax credits, known as the ISD invoice or credit note. Then, while submitting their GST returns, recipient units must make use of these credits.

2. Differences

S.NO.	CROSS-CHARGING	ISD
	Cross charging entails the direct invoicing and charging of GST for the provision of goods or services between separate registrations or business verticals.	ISD deals with the distribution of input tax credits among several business units or branches.
	Cross charging involves the issuance of tax invoices between relevant registrations	In order to distribute input tax credits, ISD issues credit notes.
	Cross charging is mostly applicable when separate registrations exist within the same organisation.	ISD is relevant when centralised services are used and input tax credits must be divided among many branches or units,

1. Legal Compliance: Every registered entity—denoted by a unique GSTIN—is regarded as a separate taxpayer under the provisions of the GST regulations. Consequently, even if two registrants are part of the same corporate group or body, every supply of goods or services between them is regarded as a taxable transaction. By precisely recording the GST obligations on these transactions, cross charging guarantees adherence to these legal obligations.
2. Use of Input Tax Credits (ITC):Cross-charging makes it easier for businesses to properly use input tax credits (ITC). GST is applied on transactions where products or services are provided by one registration to another. In order to guarantee that tax credits are effectively distributed across the company and to stop any loss or credit leakage, the receiver registration can thereafter claim ITC on the GST paid.
3. Preserving the Integrity of the Tax Chain:GST is based on the value addition principle, meaning that taxes are collected at every point in the supply chain. By ensuring that GST is correctly charged and recorded at every transaction point between several registrations or business sectors, cross-charging contributes to the integrity of this tax chain.
4. Preventing Tax Evasion: Cross charging guarantees that all taxable supplies are properly accounted for and taxed by requiring GST to be levied on inter-entity transactions. This helps avoid tax evasion. This encourages the tax system to be fair and transparent while deterring companies from using dishonest tactics.
5. Respect for Input Tax Credit Rules:In order to be eligible for input tax credits, businesses need to make sure that the GST they pay on purchases is properly recorded and reported to the government. By accurately recording and reporting their GST responsibilities and credits, cross charging helps firms comply with input tax credit laws and avoid penalties and assessments from tax authorities.

Conclusion-

FAQ’S-

What is multiple GST registration, and when is it required?

Multiple GST registration refers to obtaining separate GST registrations for different business units or operations within the same entity. It is required when a business operates in multiple states or has distinct business verticals within a state.

Can a single business entity have multiple GST registrations in different states?

Yes, a single business entity can obtain multiple GST registrations in different states where it has operations or conducts taxable supplies.

What are the benefits of having multiple GST registrations?

Benefits include compliance with state-specific regulations, eligibility to claim input tax credits in each state, and facilitation of business expansion across different geographical locations.

What is cross charging in the context of GST?

Cross charging refers to the process of charging GST on transactions between different GST registrations or business verticals within the same entity. It ensures compliance with GST regulations and proper utilization of input tax credits.

When is cross charging necessary under GST?

Cross charging is necessary whenever goods or services are supplied between different GST registrations or business verticals within the same entity, as each registration is treated as a distinct taxpayer under GST laws.

How does cross charging impact input tax credit (ITC) utilization?

Cross charging facilitates the utilization of input tax credits by ensuring that GST is correctly charged and accounted for on inter-entity transactions. Recipient entities can claim ITC on the GST paid, optimizing tax credit utilization.

What are the compliance requirements for cross charging under GST?

Compliance requirements include issuing tax invoices for cross charged transactions, accurate calculation and payment of GST, and proper documentation and reporting of such transactions in GST returns.

Can input tax credits be transferred between different GST registrations?

No, input tax credits cannot be transferred between different GST registrations. Each registration is treated as a separate entity for GST purposes, and input tax credits must be utilized within the same registration.

Are there any exemptions or special provisions for cross charging under GST?

While there are no specific exemptions, certain provisions allow for cross charging within the same entity, such as separate registration of business verticals within a state and the availability of input tax credits on inter-entity transactions.

How can businesses ensure compliance with multiple GST registrations and cross charging?

Businesses can ensure compliance by understanding GST laws and regulations, maintaining accurate records of transactions, issuing proper tax invoices for cross charge transactions, and seeking guidance from tax professionals or advisors when necessary.