Business Verticals in GST: Registration, Compliance & Benefits

Business verticals in GST refer to distinct segments of an enterprise which have different types of goods and services. Under GST, each business vertical is treated as a different entity, and separate registrations are required under the same PAN of the enterprise. This article will explore types of business verticals, their importance and implications, along with challenges faced by the enterprises.

What is a Business Vertical in GST?

A business vertical is a component of a company involved in supplying particular goods and/or services, having different risks and rewards from other business verticals of the company. For example, a company manufacturing shirts is also a distributor of electronics. Hence, there are two business verticals, i.e., textiles and electronics.

Types of Business Verticals

Major types of business verticals based on mode of operation and risk-reward attached are as follows:

Importance of Business Verticals in GST

1. Segmenting business verticals helps the enterprise visualise segment-wise performance, aiding in performance review and strategic planning.
2. Input tax credits among business verticals are allocated seamlessly since each business vertical has its own distinguished GST registration number. This reduces the risk of ineligible input tax credit if an enterprise operates multiple business verticals.
3. Each business vertical will issue an invoice under its GST registration, allowing for the bifurcation of various GST rates applicable to goods and services specific to each business vertical.

Implications of Business Verticals in GST

1. Since each business vertical will be treated as a separate GST-registered entity, an enterprise will be required to file GST returns for each business vertical, namely GSTR-1, GSTR-3B and GSTR-9, and generate e-invoices & e-way bills separately.
2. An enterprise will be required to cross-verify the GST number mentioned in the purchases, such that the correct and eligible input tax credit is claimed under each head.
3. An enterprise may also be required to obtain registration as an “input service distributor” to apportion input tax credit among business verticals related to common expenses.

Challenges Faced by Businesses

1. Administrative burden substantially increases as the enterprise will be required to file GST returns for each business vertical separately.
2. Robust finance software will be required by the enterprise to help segregate transactions between different business verticals.
3. An enterprise will need to be updated with the latest rules and regulations under the GST Act and also ensure that their staff are well-trained and equipped to deal with the amendments. Any noncompliance may attract errors and penalties.

Impact of Business Vertical Registration on Input Tax Credit

1. Input tax credit, which is directly related to each business vertical, can be claimed directly in the respective GSTIN.
2. Purchases are streamlined for each business vertical, which simplifies reconciliation of input tax credit from GSTR-2B & the Invoice Management System (IMS) available on the GST Portal.
3. An enterprise should ensure correct GSTIN of the business vertical is mentioned on the invoice (or e-invoice) and e-way bill.

Additional Considerations for Businesses

1. If an enterprise has multiple business verticals across states, it must obtain separate registrations for each vertical in every state.
2. An enterprise will also have to carefully document transactions between business verticals and comply with the valuation rules under the GST Act.
3. Enterprises must reconcile the overall revenue and costs with each business vertical on a monthly basis.

How do I file GST Returns for Multiple GSTINs?

Filing of GST returns for business verticals is similar to filing GST returns for regular taxpayers. The enterprise should collect data pertaining to sales and purchases for each business vertical, which will help the enterprise file the following GST returns:

1. GSTR 1 - Outward supplies of the business vertical for each month
2. GSTR 3B - Computation of GST liability for each month
3. GSTR 9 - Annual Consolidated summary of outward and inward supplies

Along with the above returns, a business vertical will be required to reconcile its input tax credit from GSTR-2B and also provide its response in the Invoice Management Tool.

GST Compliance for Businesses with Multiple Verticals

GST compliances are summarised as below:

1. An enterprise shall obtain separate registration for unique business verticals under its PAN on the GST portal.
2. Enterprises shall adhere to timelines related to the filing of GST returns and payment of GST liability; delaying such compliance may attract interest and penalty.
3. Each business vertical should pay its creditors within 6 months from the date of invoice, or else it will have to reverse the input tax credit availed on such invoices.