Understanding the basics of GST and Current Account

The Goods and Services Tax (GST) is a value-added tax that applies to most domestically sold goods and services. While consumers pay the tax, businesses are responsible for submitting it to the government. The goal of GST is to streamline and harmonise the tax system by imposing a tax on each stage of the supply chain's value addition.

Regarding GST registration, it's compulsory for businesses with a turnover surpassing ₹40 lakh, ₹20 lakh, or ₹10 lakh, depending on their type of supply and state/UT. GST registration is also required for entities previously registered under the old tax system, occasional taxable persons, suppliers' agents, those under the reverse charge mechanism, and those selling through e-commerce platforms. Now that you know 'what is GST,' let's discuss GST benefits.

Several benefits with the implementation of the GST can be summed up as :

Simplified Tax Structure

GST eliminates the cascading tax effect by allowing businesses to claim credit for taxes paid on inputs at each stage of the supply chain. This prevents the compounding of tax burdens and ensures that tax is levied only on the value addition at each stage.

Increased Transparency

GST promotes transparency by integrating unorganised sectors into the formal tax framework. Businesses in sectors that were previously unregulated or less regulated now comply with GST norms, improving overall business practices.

Streamlined Compliance Requirements

GST simplifies compliance by consolidating multiple indirect taxes into a single tax. Businesses now face fewer regulations and a more straightforward process for tax compliance.

Higher Exemption Limits

GST provides a higher threshold limit for registration, which means that smaller businesses with a turnover below a specified limit are exempt from GST. This threshold varies depending on the type of supply and state/UT, allowing small enterprises to operate without the additional tax burden.

Clear Guidelines

GST offers specific guidelines for e-commerce businesses, addressing the unique challenges and requirements of online trade. This includes provisions for tax collection at source (TCS) and clear rules for cross-border transactions.

Centralised Platform

GST introduces a unified online system for various tax-related activities, such as registration, filing returns, and applying for refunds. This centralised platform simplifies the entire process and reduces the need for physical paperwork.

Simplified Tax Regime

The Composition Scheme under GST provides a simplified tax regime for small businesses with a turnover below a specified limit. This scheme allows these businesses to pay a fixed percentage of their turnover as tax, instead of following the standard GST rates.

To carry out any financial transaction for your business, you must set up a  Current Account. However, GST is not mandatory to open a Current Account.

A current bank account is widespread among companies, sole proprietorships, and enterprises that execute many financial transactions regularly. The  Regular Current Account can be opened with a majority of commercial banks; however, at times, there is a requirement to maintain a minimum balance in this kind of account. The account holder does not earn any interest on this account due to its liquidity factor. There is no GST on the Current Bank Account.

Since we have established what is a Current Account and GST, let us look at whether they have any implications for each other.

The Current Account is mainly for business banking transactions. GST is a tax levied on the end-user when they purchase a commodity or service.

Thus, there is no levy of GST on the  Current Account.

Let us look at a list of documentation required to set up a Current Account and to register for GST.

Current Account :

• Identity proof such as PAN card (compulsory), Passport, Aadhar Card, etc

• Address proof: Aadhar Card, driving license, voter ID card, etc.

• In the case of any company, the registered documentation related to the specific type of company is required.

• No deposit is needed for the account when you receive your welcome kit.
   

GST:

• PAN

• Jurisdiction details

• Valid Indian mobile number

• Valid email ID

• Valid Indian bank account (Current Account details)

• Bank details: IFSC code, address and branch name

• Place of operations

• All prescribed documents and information

• At least one proprietor, partner, director, trustee, karta, a member with their corresponding PAN

• An authorised Indian signatory with valid details, including PAN
   

Registering under the GST scheme gives you a GSTIN – Goods and Services Tax Identification Number for all businesses under various platforms consolidated under the GST. The GSTIN is not mandatory when you set up your Current Account with any bank. However, when you register under the GST scheme, you require a functional Current Account.

Therefore, the business owner does not have to pay GST on the Current Bank Account set-up or functioning.

Looking to apply for a  Current Account ? Click here to get started.

Want to know more about the tax implications of holding a Current Account? Click here to get started.

*Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.