How to Ensure GST Compliance: Best Practices for Small and Medium Enterprises (SMEs)

How to Ensure GST Compliance: Best Practices for Small and Medium Enterprises (SMEs)

For most SMEs, it is hard enough managing day-to-day operations. Throw in the ever-changing landscape of India's Goods and Services Tax (GST) into the mix and it might as well be a mission impossible. But being GST-compliant is not voluntary—it's mandated to avoid penalties, maintain credibility, and do business with ease.

SME clients across sectors and observed recurring compliance issues that can easily be avoided with structured practices. Below is a practical and professional guide tailored for SMEs to navigate GST effectively.

1. Obtain the Right GST Registration

All entities with turnover over the stipulated threshold—₹40 lakhs for goods and ₹20 lakhs for services in general (₹10 lakhs in special category states)—must be registered under GST.

Action points:

• Apply under the correct category (Regular or Composition).
• Register one by one in every state where you have a business location.
• Show your GSTIN in all invoices and at your premises as per Rule 18 of the CGST Rules.

2. Raise GST-Compliant Invoices

Invoices are the foundation for tax reporting and input tax credit (ITC). A compliant invoice must include:

• Invoice number and date
• Name, address, and GSTIN of supplier and recipient
• HSN/SAC code of goods/services
• Tax rate, value, and breakup of CGST, SGST, IGST
• Place of supply (for inter-state transactions)

Tip: Usage of invoicing software can avoid errors and ensure compliance.

3. Maintain Accurate Books and Records

Entity must maintain and preserve the following records for six years from the due date of filing the annual return:

• Purchase and sales registers
• ITC ledger
• Stock register
• Expense ledgers
• Debit/credit notes, delivery challans, and payment vouchers

Having digitized, easily retrievable records is crucial for audits and scrutiny.

4. Know and Follow the GST Return Filing Calendar

GST returns are periodic filings that summarise sales, purchases, and tax liabilities. Missing deadlines may attract penalties and restrict ITC claims.

Below are the key GST return due dates for SMEs (as of FY 2025-26):

Return	Applicability	Frequency	Due Date
GSTR-1	Outward supplies (Regular)	Monthly	11th of the following month
	If opted for QRMP Scheme	Quarterly	13th of the month following the quarter
GSTR-3B	Summary of outward, ITC, tax	Monthly	20th of the following month
	Under QRMP Scheme	Quarterly	22nd or 24th (based on state group)
GSTR-9	Annual return (if turnover > ₹2 Cr)	Yearly	31st December following the FY
CMP-08	Composition dealers	Quarterly	18th of the month following the quarter
GSTR-4	Annual return for Composition	Yearly	30th April following the FY

Note: Due dates are subject to change via government notifications; always verify with the CBIC portal or your CA.

5. Input Tax Credit (ITC) Management

To claim ITC under GST, ensure:

• Invoices are valid and accurately recorded
• Goods/services have been received
• Supplier has filed GSTR-1 and paid the tax
• ITC is matched with GSTR-2B (auto-drafted statement)

Important: ITC can be claimed only if it appears in GSTR-2B. Mismatches or ineligible claims may result in ITC reversals with interest.

6. Reverse Charge Mechanism (RCM)

Here the recipient of goods or services pays GST instead of the supplier under RCM. Common scenarios include:

• Services from unregistered goods transport agencies (GTA)
• Legal services from advocates
• Import of services

Ensure tax under RCM is paid in cash and ITC is claimed where eligible.

7. Use GST-Compliant Software

To streamline compliance, reliable GST software should be implemented by SMEs that:

• Auto-generates compliant invoices
• Syncs with GSTN for return filing
• Reconciles ITC with GSTR-2B
• Tracks due dates and sends reminders

Popular options include Tally Prime, Zoho Books, Busy, ClearTax, and Marg ERP.

8. Stay Updated with Changes in GST Law

GST is constantly evolving, with changes in rates, compliance rules, e-invoicing thresholds, etc. As professionals, we recommend:

• Subscribing to updates from CBIC and GSTN
• Attending ICAI-hosted webinars or regional seminars
• Consulting with your CA before major business changes

9. Conduct Regular Internal GST Reviews

Periodic reviews or “GST Health Checks” are vital to prevent future disputes or notices. Focus on:

• Reconciliation of GSTR-1 vs. books
• GSTR-3B vs. GSTR-2B (ITC claims)
• Classification and HSN code accuracy
• RCM applicability
• Timely filing and error rectification

An annual or semi-annual audit by a Chartered Accountant is highly advisable.

10. Train Your Staff and Build Awareness

Often, non-compliance stems from a lack of awareness at the operational level. Conduct in-house training for:

• Accounts, sales, and procurement teams
• Proper document handling and invoice management
• Understanding ITC eligibility
• Compliance timelines and e-way bill rules

11. Take Professional Help When Needed

While some businesses attempt to manage GST in-house, it’s important to engage professional assistance for:

• Return filings and reconciliations
• Responding to GST notices
• Structuring transactions to minimize tax liability
• Managing refunds, exports, and SEZ transactions

As Chartered Accountants, it is our job that your GST procedures are not only compliant, but also efficient and tailored exactly to your enterprise needs.

Conclusion

GST compliance of SMEs is an ongoing process. Systematic steps, with the help of timely filing, adequate documentation, technology assistance, and professional guidance, can prevent penalties, improve operating efficiency, and optimize GST input credits.

If you are an SME and wish to automate GST compliance or sort out any historical issues, we welcome you to contact us. We would be happy to assist you in developing a strong tax-compliant platform for your expanding business.