New GST Mechanism to Simplify Registration for Small Businesses and New Applicants

The GST Council, in its December 21, 2024, meeting, granted 'in-principle' approval to a new mechanism aimed at simplifying the registration process for new and small businesses. The proposed framework seeks to grant GST registrations within three working days, streamlining the process and addressing key concerns raised by taxpayers and authorities alike.

Dual Objectives of the New Framework

According to officials, the mechanism targets two pressing issues. Firstly, it aims to eliminate unnecessary queries and prevent arbitrary denial of registrations, a frequent grievance among applicants. Secondly, it seeks to curb the misuse of the current registration system, where fabricated identities are exploited to obtain multiple registrations for fraudulent Input Tax Credit (ITC) claims.

Simplified Process for 98% of Applicants

Data analysis revealed that nearly 98% of new applicants either do not claim ITC or claim ITC under ₹5 lakh per month. Under the proposed framework, these applicants will benefit from an expedited process, receiving their GST registration within three working days of successful application submission.

This streamlined process eliminates the need for physical verification of business premises or visits to tax offices. "This approach not only ensures ease of doing business but also reduces the workload on tax officials, enabling them to focus on high-risk applications," an official explained.

Four-Tier Structure for GST Registrations

The new mechanism incorporates a four-tier structure to cater to different types of businesses:

1. Tier 1 - New and Small Businesses:

   • Aadhaar-based authentication to grant registration within three working days.
   • ITC claims capped at a specified monthly limit.

2. Tier 2 - Deemed Trusted Businesses:

   • Includes entities like public sector companies, government bodies, and businesses with a proven compliance record.
   • No cap on ITC claims, and registration granted without Aadhaar authentication or physical verification.

3. Tier 3 - Existing Businesses Exceeding ITC Limit:

   • Applicants must submit a non-refundable application fee, fixed deposit, and NoC from a deemed trusted entity.

4. Tier 4 - Change of Category for ITC Limit Exemption:

   • Allows businesses to transition to higher ITC claim thresholds based on specified requirements.

Rollout Plan and Legal Amendments

The GST Council’s Law Committee will now draft necessary amendments to laws and rules to implement this mechanism. The rollout will be phased, beginning with new and small businesses.

This initiative is expected to significantly improve the ease of doing business while enhancing GST compliance and curbing fraudulent practices.