In today’s time, having a side hustle to earn extra bucks has become a go-to option for everyone. Whether you’re a freelance writer after office hours, an online seller on weekends, or a consultant sharing your expertise, you’re essentially running a small business alongside your regular job.
Now, here’s a little secret that can actually help you save money on this extra income: GST registration and the magic of Input Tax Credit (ITC).
Think of GST as that tax you see on most of your bills. You often pay GST when you buy something for your business (even your part-time one). On the same side, through Input Tax Credit the government allows enterprises incurring GST on their purchases to offset this amount against their own GST liabilities when they sell goods or services.
In short, it functions as a mechanism through which the government provides relief to businesses.
In this blog, you will learn how this process acts as a refund on the taxes that have been disbursed, how to apply for it, and other measures.
Who is Eligible For ITC on Business GST?
One myth that most people have is that GST is only applicable for big companies. While it’s true that GST applies to businesses, the rules in India also cover individuals earning above a certain threshold from their business activities, even if they’re also salaried. This could be you if you’re:
- A Freelancer or Consultant: Offering services like content writing, web development, financial advice, etc., and your earnings from this exceed ₹20 lakhs annually (for services in most states).
- An E-commerce Seller: Selling products online, even part-time, and your total sales cross ₹40 lakhs annually (for goods in most states).
- A Home-Based Service Provider: Think tutoring, crafting and selling goods, or offering beauty services, where your income goes beyond the specified limit.
Even if your earnings are below these limits, registering for GST voluntarily can still be advantageous if you make significant business-related purchases that include GST.
What is Input Tax Credit & How is it Applicable?
Let’s imagine you’re a salaried software engineer who also develops and sells mobile apps as a side gig. You buy a new high-end laptop specifically for your app development work, and pay ₹5,000 as GST on it. When you sell your apps and collect GST from your customers, you can use that ₹5,000 you already paid (the Input Tax Credit) to lower the amount of GST you need to deposit with the government.
Still confused? Here’s a simple breakdown:
- You bought a laptop for your app business and paid ₹5,000 GST on it.
- You sold apps and collected ₹10,000 + ₹1,800 (18% GST) = ₹11,800 from customers.
- Because you’re GST registered, you can claim the ₹5,000 ITC.
- Instead of paying the full ₹1,800 GST to the government, you can offset it against your ₹5,000 ITC. In this case, you wouldn’t owe any GST for this transaction and would even have some ITC left over for future use!
This is a direct way to reduce your business expenses and increase your profitability. If you’re curious about the initial step, you can learn more about how to register for GST.
What Can You Claim ITC On?
Generally, you can claim Input Tax Credit on the GST you’ve paid for goods or services directly used for your business. This includes:
- Equipment and Machinery: Like that laptop for the app developer or tools for a freelance carpenter.
- Raw Materials and Supplies: If you’re creating and selling physical products.
- Software and Online Subscriptions: Essential tools for many online businesses.
- Business Services: Hiring a website designer, paying for marketing, or using accounting services.
- Office Supplies: Stationery, printing costs, etc.
However, remember that ITC is usually not applicable for personal expenses or for certain items specifically mentioned in the GST rules.
Why Should a Salaried Person Go Through the Hassle of GST Registration?
Even with a steady salary, getting a GST registration for your side business can bring significant financial benefits:
- Direct Tax Savings through ITC: This is the biggest advantage, reducing your GST liability by claiming credit on your business purchases.
- Legal Recognition and Credibility: Being GST registered gives your side business a formal identity and can make you appear more professional to clients.
- Smooth Business Transactions: You can issue GST-compliant invoices, which is often a requirement for other businesses you might work with.
- Potential for Business Growth: As your side hustle expands, being GST registered makes it easier to handle larger transactions and work with a wider range of clients.
If you’re considering taking this step, it’s crucial to understand the entire process of getting registered. You can find comprehensive information on GST registration.
What Comes with GST Registration?
While the benefits of ITC are attractive, it’s important to be aware of the responsibilities that come with GST registration. These include:
- Regular GST Return Filing: You’ll need to file GST returns periodically (monthly or quarterly, depending on your turnover).
- Issuing GST-Compliant Invoices: Your invoices must follow specific formats and include all required details.
- Maintaining Accurate Records: You need to keep proper records of your sales, purchases, and input tax credit claimed.
- Staying Updated with GST Rules: The GST regulations can change, so you need to stay informed about any new updates.
While these responsibilities require some effort, they are essential for staying compliant and continuing to claim your Input Tax Credit benefits.
Is GST Registration the Right Move for Your Side Hustle?
Getting a GST registration to claim Input Tax Credit is for you if;
- You’re a salaried individual in India earning a substantial income from your side business that meets or exceeds the GST threshold,
- You incur significant business-related expenses with GST.
It’s a smart way to reduce your tax burden and boost the profitability of your entrepreneurial ventures.
It’s always wise to assess your specific situation and consult with a tax advisor to understand if GST registration is the right step for you. They can guide you through the process and ensure you comply with all the regulations. Don’t let those potential tax savings slip through your fingers – explore the possibilities of GST for your side business today!