If you’re running an online business in India, you’ve probably heard about GST getting implemented across all industries for the sale of goods - both products and services.
But if you’re new to the same, this guide will cover everything you need to know about GST and how you can set it up on your Shopify store. Please use the table of contents below to skip to the section relevant to you.
What is GST?
GST stands for Goods and Services Tax. It is an indirect tax that has replaced many indirect taxes in India such as VAT, services tax, excise duty and others.
Simply put, GST has now become a single domestic indirect tax law for the entire nation.
Goods and Services Tax (GST) is levied on the supply of goods and services across all industries. It is a comprehensive, multi-stage, destination-based tax that is applicable on every value addition and is levied at the point of sale.
Now, let’s take a look at the meaning of some of the terms above:
- Multi-stage: Starting from manufacture until the final stage of sale to the consumer, an item goes through multiple changes of hands. For instance, purchase of raw materials, production/ manufacturing, warehousing, selling to retailers and selling to end consumers. Under GST, tax is levied on each of these stages and that’s why it is referred to as a multi-stage tax.
- Value addition: Let’s assume you manufacture a shirt. The value of the inputs increases when you add a print to it, and then further invest in sustainable packaging for sale. Post which it goes into warehousing before being actually sold. Each of these stages are called value additions that make a product/ service more valuable to the eng consumer. GST is levied on these value additions.
- Destination-based: If you’re manufacturing products in Uttar Pradesh, but are selling to a consumer in Maharashtra, GST is levied at the point of consumption. This means that the entire tax revenue will go to Maharashtra instead of Uttar Pradesh.
What are the objectives and advantages of GST?
The GST Tax Act was passed in the Parliament on March 29, 2017 and came into effect on July 1, 2017 with the following objectives:
- To achieve ‘one nation, one tax’ ideology: The advantage of having one single tax means that every state has to follow the same rate for a particular product or service, making tax administration easier with the Central Government deciding these rates and policies.
- To follow common laws across all businesses: GST allows common laws such as e-way bills for goods transport and e-invoicing for transaction reporting across all industries. This makes tax compliance easier as taxpayers do not need to use multiple return forms and deadlines.
- To subsume indirect taxes in India: India has had several taxes such as service tax, VAT, Central Excise and more, which were levied at multiple supply chain stages. While some of these taxes were governed by the Center, the others were by the states, resulting in no unified and centralized tax on both goods and services.
- To eliminate cascading effects of taxes: Due to previous indirect tax laws, taxpayers could not set off tax credits accurately. Under GST, the tax levy is only on the net value added at each stage of the supply chain, helping eliminate the cascading effect of taxes and contribute to input of tax credits across all goods and services.
- To curb tax evasion: Taxpayers can claim an input tax credit only on invoice uploaded by the suppliers they make a purchase from. This has reduced the number of claims on fake invoices and tax credits, and has also decreased defaulters in the nation.
- To increase taxpayer base: Indirect taxes followed different threshold limits for registration based on a taxpayer’s turnover. Since GST follows a consolidated tax levied on both goods and services, it has increased the number of tax-registered businesses.
- To improve ease of doing business: GST procedures are carried out online and don't require dealing with different tax authorities under each tax law. From registration to return filing and refunds, everything is now more streamlined, making it easy to run a business.
- To improve logistics and distribution system: GST reduces the need for multiple documentation for the supply of goods. The removal of interstate checkpoints has been the most beneficial in improving transit and destination efficiency, also helping cut down high logistics and warehousing costs.
- To promote competitive pricing and increase consumption: Due to the indirect taxes, products were sold at different costs across states. Having a uniform GST rate has helped establish competitive pricing across India and on a global front, increasing consumption and driving higher revenue for businesses.
What are the components of GST?
As you start to learn more about GST filing, you will come across three taxes that are applicable under the system:
- CGST: This is the tax collected by the Central Government on any intra-state sale made.
- SGST: This is the tax that gets collected by the State Government on an intra-state sale made.
- IGST: This is the tax collected by the Central Government for an inter-state sale made (eg. from Uttar Pradesh to Maharashtra)
Do you need to register for GST?
GST registration is mandatory for businesses under the following conditions:
- Your financial year turnover for the supply of goods is over INR 40 lakhs in normal category states (INR 20 lakhs in special category states)
- Your financial turnover for the supply of services is over INT 20 lakhs in normal category states (INR 10 lakhs in special category states)
- Your business is registered under an earlier law (such as VAT, Excise Tax, Service Tax)
- You are doing business that involves inter-state supply of goods and services
- You sell products and services on online marketplaces
You can learn more about who is liable to register for GST, here.
Before registering for GST, you will be required to complete an MSME registration. You can learn everything about MSME registration here.
How to register for GST?
If you fall under any of the conditions above, you need to register yourself or your business for GST.
- Go to the official GST portal - https://www.gst.gov.in/
- Under the services tab, choose Services -> Registration -> New registration
- On the registration page, enter the requested details including your PAN number, email address and mobile number
- Enter the OTPs received on your email address and phone number for verification
- Save the 15-digit Temporary Reference Number (TRN) you receive
- Go back to the GST portal and select New Registration
- Select TRN and enter your 15-digit code
- Enter the OTP you receive on your registered email address and phone number
- Your application status will be now seen in ‘drafts’
- Click edit to further submit your documents as requested in the portal (photographs, constitution of the taxpayer, proof for the place of business, bank account details, verification and aadhaar authentication)
- Under the Business Details section, enter your trade name, business constitution and district
- Submit details of goods and services in the next tab along with the HSN codes or SAC (for up to a maximum of 5 goods and 5 services)
- Once you have submitted all the requested information and documentation, your account will go in for verification and approval
- Before you start generating invoices, you will also need to sign up on the Invoice Registration Portal (IRP); the website assigns reference numbers to each invoice, credit and debit note
For a detailed step-by-step on GST registration, you can visit this link.
How to find the HSN code for your products/ services?
HSN is a global coding system designed to assign codes to products and commodities universally. It is an internationally recognised coding system that allows the classification of products throughout the world.
For example, if you sell printed shirts online, there is a specific 6 digit code that indicates the category of the product you are selling. So no matter where you are selling the product - national or international, the government can identify the type of product and the taxation applicable on it through the code.
To learn more about finding and creating your HSN code, please read this article.
How to set up GST on your Shopify store?
The tax rate differs based on the product or service you’re selling. That’s why Shopify does not come with an automatically set GST rate.
Shopify has set some defaults that you must update based on what you sell, where your business is located and where you intend to sell the products and services.
The default GST settings on your Shopify admin will look like:
Use the default tax rates as a starting point when setting up your taxes.
For example, you’re a business based out of Mumbai (Maharashtra), where a 28% GST applies. To charge the right tax percentages, you will need to change the default settings as follows:
- Set the Country tax rate to 14%
- Under Regions, set the IGST tax rate to 28% for all states except Karnataka and Maharashtra
Step-by-step to set up GST on your Shopify store
- Go to Shopify admin -> Settings -> Taxes
- Select India from the Tax rates list
- If you do not see India, go to Settings -> Shipping -> Shipping profiles -> Create new profile -> Create shipping zone -> Select India
Once you have added India to your Tax rates list, you need to next set up individual tax rates of each state.
- Go to Settings -> Taxes -> Click on India
- Enter 9% CGST tax rate in the Country Tax field
- For the state you are in, add SGST and select ‘added to 9% federal tax’ from the drop-down
- For all other states, add IGST and choose ‘instead of 9% federal tax’ from the drop-down
Next, you need to set up different tax rates if you sell products at different slabs. This requires adding tax overrides.
- Go to Settings -> Taxes -> click India
- Scroll to Tax overrides
- Add a collection of products from your store and set Tax Rates for both India and individual states
How to make sure your tax settings are correct
Shopify settings can help you automate your taxes. But it does not remit or file taxes on your behalf.
To be absolutely sure that you are setting up the correct tax rates, we recommend checking with local tax authorities or a tax professional.
Alternatively, you can refer to these resources to know what tax rates are applicable to your products/ services:
Does Shopify provide a GST-compliant bill?
No, Shopify does not create a GST-compliant bill.
If you sell goods, your GST invoice will include a description, quantity and value of the purchase along with other particulars. But if you sell services, your GST invoice will include a description, value and other particulars of the service provided.
Please read this document carefully to know which GST invoice format is applicable to your business: GST Tax Invoice.
To make it simpler for online businesses running storefronts on Shopify, we have a number of plug and play apps that make GST invoicing easier like the GST Invoice + Reports App. You can explore more apps here.
Here’s an example of what a tax invoice looks like:
Getting started with GST
As a new business owner, you may feel overwhelmed when it comes to understanding the nuances and regulations under the GST Tax Act.
To be able to understand GST, how it works, how to file the tax and which category your business falls under, we recommend taking a consultation from a tax professional. They can help you set up a framework of recording your GST bills, provide you with a GST bill format and also ensure you file them on time for returns.
People also asked
How do I create a tax invoice on Shopify?
Shopify has a free invoice generator tool that you can use to create invoices for the orders you receive. But you will need to set up GST tax details in the Shopify admin under Taxes as explained in this guide.
How do I download a GST invoice from Shopify?
If you are using an app to generate GST invoices, you need to go to Shopify admin -> Apps -> select the GST app you’re using and the invoice you want to download. All your invoices otherwise are also available in the Orders section of the admin.
Is GST mandatory on Shopify?
As of July 1, 2017, Goods and Services Tax (GST) has to be charged on all goods and services provided by online stores in India. So if you have set up a Shopify store in India, GST is mandatory.
How does Shopify calculate GST?
Shopify does not automatically calculate GST. You will need to go to your Settings -> Taxes and click on India. There, you need to enter the 9% CGST tax rate into the Country Tax field and for the state your store is based in, you will need to add the SGST rate and choose added to 9% federal tax from the drop-down.
Can we sell on Shopify without GST?
If you are selling your products through an eCommerce portal then GST registration is compulsory. All the regulations on the revenue threshold stand true for businesses selling online.