19 October 2020
I am a proprietor of electronic learning kit manufacturing company. Most of my purchases will be from unregistered small companies. I like to sell my products in e-commerce sites so I planning to register for GST. Since my suppliers are unregistered companies how do I make my invoices???
10 August 2024
Under GST regulations, there is no strict rule that mandates you to buy raw materials only from GST-registered vendors. However, purchasing from GST-registered vendors has certain advantages and implications, particularly for input tax credit and compliance. Here’s a detailed breakdown:
### **Advantages of Purchasing from GST-Registered Vendors**
1. **Input Tax Credit (ITC):** - **Eligibility:** When you purchase raw materials from GST-registered vendors, you are eligible to claim Input Tax Credit (ITC) on the GST paid on those purchases. This can help reduce your overall tax liability. - **Documentation:** The GST-registered supplier will issue a tax invoice with GST details, which you need to claim ITC.
2. **Compliance and Record Keeping:** - **GST Compliance:** Purchasing from registered vendors helps ensure compliance with GST regulations. Your purchases and their corresponding GST will be reported in your GST returns. - **Avoid Penalties:** Buying from unregistered suppliers might lead to issues with claiming ITC, and you could face penalties if the supplier defaults on tax payments.
### **Implications of Purchasing from Unregistered Vendors**
1. **No ITC on GST:** - **No Credit:** If the vendor is not registered under GST, you won’t be able to claim ITC on any GST that might be applied (if applicable). For exempt or non-GST products, this is less of a concern.
2. **Documentary Issues:** - **No Tax Invoice:** Unregistered vendors typically do not issue GST invoices. This can affect your ability to claim ITC or maintain accurate records for your financial and GST reporting.
### **Rules and Regulations**
1. **No Mandatory Rule for GST-Registered Vendors:** - **Legal Requirements:** There is no specific rule under GST that mandates purchasing only from GST-registered vendors. Businesses are free to purchase from both registered and unregistered vendors.
2. **Threshold for Registration:** - **Registration Requirement:** Suppliers must be registered under GST if their turnover exceeds the prescribed threshold limit (₹40 lakhs for most states, ₹20 lakhs for special category states). If your supplier’s turnover is below this threshold, they might not be registered.
3. **Reverse Charge Mechanism (RCM):** - **Unregistered Suppliers:** If you purchase goods or services from unregistered suppliers and the transactions fall under the reverse charge mechanism, you will have to pay GST directly to the government and cannot claim ITC.
### **Practical Recommendations**
1. **Prefer Registered Vendors:** - **Ease of Compliance:** For ease of GST compliance and to take advantage of ITC, it is beneficial to purchase from GST-registered vendors.
2. **Verify Registration:** - **Vendor Verification:** Always verify the GST registration status of your suppliers and ensure that they issue proper tax invoices.
3. **Maintain Records:** - **Document Management:** Keep detailed records of all transactions, including purchases from unregistered vendors, for accurate financial and GST reporting.
4. **Consultation:** - **Professional Advice:** If in doubt or dealing with complex transactions, consult with a GST professional to ensure compliance and proper handling of ITC and other GST-related matters.
By understanding these aspects, you can make informed decisions regarding your purchases and ensure compliance with GST regulations while optimizing your tax liabilities.
CAclubindia
