MSME Guide to GST – Essential Details and Insights

January 17, 2025

9 min read

Implementation of the Goods and Services Tax (GST) restructured the indirect tax system of India and brought significant changes in almost every economic sector of India. This comprehensive tax has been created by summing up all the consumption (indirect) taxes that were put separately on goods and services. The GST council decides GST rates, goods, and services under it and exemptions. These things might change as per the decision of the council.

MSMEs (Micro, Small and Medium Enterprises) are some specified businesses whose annual turnovers do not exceed a certain amount. To learn the impact of GST on MSMEs, read the full article.

What are the different types of GST?

Categorization of GST was necessary to make the new tax system of India simpler and easier than before. Therefore, the types of GST are discussed below.

IGST or Integrated Goods and Services Tax: Full form of CGST is central goods and services tax. This tax regime is applicable on exports and imports as well as for businesses done between two states. The central government collects this tax. This tax is applied when the place of origination and the place of supply of the goods and services are in two separate states, i.e. there is an interstate transaction or supply of goods and services. For products in which IGST is applied, there is also a component of SGST. SGST is paid to the central government, however IGST is shared among the two states where the products and services originated and delivered.
CGST or Central Goods and Services Tax: This tax is also collected by the central government and is applicable for the intrastate exchange of goods and services.
SGST or State Goods and Services Tax: Under the GST regime, another tax is similar to CGST, and that is State GST. It is collected by state governments and is applicable for the intrastate supply of goods and services. i.e. goods and services originating and supplied within the same state. Hence, the state government will receive the entire tax component under this category. SGST and CGST are usually applied together where SGST goes to the state and CGST component goes to the central government.
UTGST or Union Territory Goods and Services Tax: This tax is applicable for the transactions made within the union territories of India.

Also Read: GST Full Form & Meaning

What are the different tax slabs of GST?

GST means goods and services tax, this is a simplified structure of indirect taxation introduced recently. GST is applicable on almost all goods and services, except for those mentioned in the exception list. Different GST is attracted for different categories of products. There are 4 types of GST slabs in India i.e., 5%, 12%, 18%, 28%. Those slabs might be revised at times if needed by the GST council. Necessary items like food medicines come under the lowest tax slab, while the highest tax slab is for luxury and sin goods like AC, tobacco products, gutkha, etc. Look at the below table to learn more about GST rates and the items under the same.

GST Rates	List of Goods and Services
5% GST slab	Food items: Tea, sugar, coffee (not instant coffee), oil, cashew nuts, spices, fish fillets, baby foods, mithai or Indian sweets, etc Fuel: Biogas and coal Apart from these life-saving drugs, clothing, and footwear below 1000 Rs, handmade carpets, fertilisers, newspaper printing, flight tickets for economy class, tourism guide services, aircraft leasing, tailoring, transport service given by AC cabs, incense sticks, accessories used by specially-abled, fly ash blocks, etc. come under these tax slab.
12% GST slab	Dairy products: Butter, paneer or cottage cheese, ghee, cheese Processed food items: ketchup, sauces, fruit juices, frozen meats, cakes, etc Utensils used in cooking: Ladles, spoons, forks, tongs, etc Apart from these sewing machines, handmade matches, Movie tickets below 100 Rs, drinking water, foremen-led chit fund service, photographs, mining and drilling natural gas, handbags, dry fruits, flight tickets from a business class, corrective spectacles and glasses, plastic beads, etc. come under these tax slab.
18% GST slab	Food items: Chocolate, Ice cream, mineral water, biscuits, soups, pastries, chewing gum, pasta, etc Household items: Shampoo, detergent, shaving products, hair oil, etc Electronic appliances: Lights, Fans, refrigerator, washing machines, camera, vacuum cleaners, etc Capital goods: Optical fibre, parts of pumps, ball bearing, roller bearing, aluminium foils, etc Apart from this, make-up and cosmetics, weighing devices, goggles, movie tickets over 100 Rs, telecom and IT services, some cooking items, sports goods, theatre, outdoor catering, binoculars, stationery items, etc come under these tax slab.
28% GST slab	Food items: Instant coffee, custard powder, chocolates without cocoa, sugar syrup, etc Apart from these aircraft, AC, wigs, casinos, tobacco, and tobacco made products, 5-star hotel services, entertainment services, ATM vending machines, sports events, etc., come under these tax slabs.

What advantages can MSMEs get from GST?

Find out the benefits MSMEs enjoy under the Goods and Services Tax regime.

A single tax: Before the introduction of GST, MSMEs had to pay separately for multiple indirect taxes such as VAT, service taxes, etc. Not only was the procedure difficult, but also the MSMEs had to bear a heavier tax burden. Hence, a single tax has helped streamline the taxation process. Be it filing, or paying. The process has become extremely easy compared to what it was.

Lightened tax burden: The practice of entertaining different taxes before the implementation of GST was responsible for a heavier tax burden on MSMEs. Previously they needed to pay around 32% tax integrating central and state-level taxes. But now they pay approximately 18% to 22% GST. This lightened tax burden has essentially freed up the MSMEs ability to invest in their business enhancement, to increase efficiency and profitability over the long term.

Lowered transportation cost: Transportation service falls under the lower tax slabs of GST. Therefore, MSMEs now have to spend less on transporting their final goods. It also reduced the total cost of production. This reduced cost of production will have benefits on multiple industries, especially those specialized industries where the goods are usually transported over longer routes due to seasonal and geographical factors and restrictions.

Improvement in growth: Different taxes made it difficult for MSME owners used to expand their businesses. They usually preferred to run their businesses without approaching the markets of other states as the complex tax structure could increase their total production cost. But the scenario now has changed significantly.

Easy registration process: Earlier, MSMEs needed to register under different tax systems. That was a complex and consequently delaying procedure. On the other hand, GST registration neither takes much time nor is complex. MSME owners can complete the process by visiting the official web portal for GST registration. GST registration for msme and other businesses is really easy. Upon visiting the website, the applicant needs to choose the category under which the business will be assessed, followed by providing necessary supporting documents, and selecting GST codes as applicable on the products and services on offer. Upon successful assessment, the GST number will be allocated to the business.

Conclusion:

MSMEs are the backbone of the Indian Economy as they contribute almost 29 – 30% to the GDP of India. The Indian government always encourages such enterprises and offers them a lot of advantages in several areas to smoothly expand their businesses. Similarly, GST, one of India’s most significant tax reforms, didn’t disappoint the MSMEs. Besides lowering the tax burdens, the simplified structure of GST has played a vital role in the growth of MSMEs.

Everything MSMEs Need to Know About GST FAQs:

1. How to differentiate between small and micro-enterprises?

The easiest way to differentiate between small and micro enterprises is to determine their investment amount and turnover. The investment amount and the annual turnover for small enterprises do not exceed 10 crores and 50 crores, respectively, while the investment amount and the yearly turnover of micro-enterprises are not more than 1 crore to 5 crores, respectively.

2. What is the annual turnover of medium enterprises under MSME?

Medium enterprises have an annual turnover of between 50 and 250 crores. And its investment does not exceed 50 crores.

3. Is GST good for MSMEs?

GST has a number of positive influences on MSMEs, such as reduced tax burdens, lower transportation cost, easy expansion of business, hassle-free registration process, and so on. However, remember that GST registration is optional if you do not meet the turnover criteria. Upon exceeding the minimum turnover threshold, the entrepreneur has to get GST registered for the business. The threshold is different for different states and depends upon the offering i.e. only products, only services, or products and services.

4. Can MSMEs complete the GST registration process online?

Yes, MSME owners can complete their GST registration process by visiting the official web portal allotted for this particular task. This process is cost-free for everyone. The entrepreneur simply has to visit the GST registration website, provide details of the business and self, select the assessment category, upload relevant supporting documents, select the GST code applicable to the goods and services offered by the business and submit for assessment post authentication.

5. Under which GST slab are MSMEs liable to pay?

MSMEs generally pay under the 18% tax slab. Sometimes the rate exceeds a bit for different circumstances.