Trade License for GST Registration
No, a trade registration is not a mandate for securing GST approval. There is a general misconception that a trade license copy serves as a mandatory annexure while applying for a GST certificate. In reality, both certificates serve distinct purposes and deal with different legalities. Hence, there is no need to arrange a Trade License for GST Registration.
While a Trade license is mandatory for entities belonging to commercial settings, the GST certificate applies to businesses whose yearly revenue exceeds the threshold limit, which is Rs 40 lacs for products and Rs 20 lacs for services. Both registrations are mandatory but in different aspects. Let’s delve into the following section that will differentiate these certificates.
What is GST Registration?
GST seeks to subsume several indirect taxes to form a unified tax structure. It is primarily applied to the transaction of goods and services, happening within the states or on an inter-state basis. This rule does not apply to entities operating in Hilly and northeastern States. While applying for GST, you need to share some mandatory documents such as incorporation certification, income proof, director’s proof, business address proof, etc. It’s noteworthy that there is no need to arrange a Trade License for GST Registration.
GST has four components namely;
IGST: IGST stands for Integrated Goods and Services Tax. It is levied on the supply of goods and services at the inter-state level as a combined tax of SGST and CGST.
SGST: It refers to a state-level tax imposed on the intra-state transactions. GST is typically charged on inward sales by the seller on behalf of the government.
CGST: It stands for Central Goods and Services Tax. It applies to intra-state supplies.
UTGST: it is abbreviated for Union Territory Goods and Services Tax. It applies to intra-union territory transactions.
What is a Trade License?
Trade license falls under the Shop and Establishment Act, which regulates different aspects of businesses such as working hours, documentation, worker’s safety, business practices, and child labor. It is granted on a jurisdiction-wise basis by the respective municipal corporation. It compels businesses to emphasize level-field playing with the utmost regard for the environment and human beings.
A trade license categorizes businesses based on the risk threshold. Low and medium-risk businesses refer to entities that pose minimal to moderate risk to humans and the environment. Some common examples include cafes, hotels, attorney services, beautician businesses, etc. Meanwhile, high-risk businesses are the ones that are vulnerable and pose significant risks. Some common examples include tobacco and liquor businesses, etc.
Is Trade License Mandatory for GST Registration?
Trade license and GST registration are different legal approvals with no direct correlation whatsoever. While securing both certificates is vital, they do not fit into the same legal realm owing to distinct legalities and compliance. Hence, it does not make sense to consider a Trade License for GST Registration.
The following section would help you understand why these registrations are unrelated, yet mandatory for businesses.
Trade License Vs. GST registration
Trade license legalizes the core business activities and compels businesses to rely on fair practices. Whereas, GST registration imposes taxes on notified businesses earning above the threshold limit.
Securing GST registration signifies that a given business has an annual income surpassing the threshold limit i.e. 40 lakhs (products) or 20 lakhs (services). Conversely, businesses with Trade licenses are bound to be committed to underlying norms for executing in-house operations and business transactions.
While the GST registration falls under the GST Act, the trade license is governed by the Shop and Establishment Act 1948.
GST is all about tax considerations under GST law, and the imposition of different tax rates based on turnover and the nature of supplies. Meanwhile, trade license seeks to harmonize the business environment by inculcating strict guidelines for business owners.
The document consideration for GST registration includes company incorporation, director’s identity, signatures, address proof, business place address, etc. Alternatively, a trade license requires the applicant to arrange the paperwork like business registration, address proof, documents reflecting core business activities, etc.
FAQs around Trade License for GST Registration
Can GST be applied without trade license?
No, a trade license is not required for GST registration.
What are the mandatory requirements for GST registration?
Mandatory requirements for GST registration include PAN, Aadhaar, bank account details, and business documents.
Is trade name compulsory in GST registration?
Yes, providing a trade name is compulsory in GST registration.
Is trade license mandatory in India?
Yes, a trade license is mandatory in India for certain businesses.
Who needs trade license in India?
Businesses engaged in activities such as manufacturing, trading, or services typically need a trade license in India.
Why do we need trade license?
A trade license is needed to ensure that a business complies with local laws and regulations.
What is the difference between trade license and registration?
Trade license authorizes the business to operate in a specific location, while registration like GST is for tax compliance.
How many types of trade licenses are there in India?
There are typically two types of trade licenses in India: for commercial establishments and for industrial establishments.
Conclusion
It is evident from the above that you do not need a Trade License for GST Registration in any scenario. Both registrations are unrelated and belong to different legal landscape. This article aims to dispel skepticism surrounding these registrations and offer precise information, empowering you to navigate compliances with ease.
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