Udyam Registration
Swachh Bharat

Is it mandatory to have GST Registration to apply for Udyam Registration?

When it comes to starting and operating a Micro, Small or Medium Enterprise the government of India through its Ministry of MSME has laid down certain processes to facilitate ease of doing business in India. A major registration process being implemented by all MSMEs in India today is the Udyam Registration which was called as Udyog Aadhar or MSME Registration previously.

We all know that the Ministry of MSME via its notification no. S.O.2119 (E) dated 26th June 2020 published in the official Gazette of India, introduced the new system of Udyam Registration and has since replaced it with the existing system of Udyog Aadhar Registration or MSME Registration. While doing so it has laid down some new pre-requisites which are now required by MSMEs to obtain their Udyam Registration.

These pre-requisites or the required documents to apply for Udyam Registration are:

1) A valid Aadhaar Number of the proprietor / partner / director / trustee or any other representative representing the firm or organization.

2) The Aadhaar number needs to be linked to a valid mobile number which is accessible to the Aadhaar holder. An OTP will be sent to this number for verification.

3) A valid PAN Card Number of the firm or organization applying for registration. For Proprietorship firms the PAN Card number of the proprietor can be used to avail registration.

4) A valid GST Registration or GSTIN of the firm or organization.

If any enterprise has the above pre-requisites they can apply for their Udyam Registration and avail the various benefits laid down under the MSME Scheme by the Ministry of MSME.

Now let’s try to answer our question:

Is it mandatory to have GST Registration to apply for Udyam Registration?

To find the answer to this question we will have to cite a few circulars and notifications passed by the government till date.

Even though GST Registration was not mandatory for Udyog Aadhaar, the government under the notification no. S.O.2119 (E) dated 26th June 2020 published in the official Gazette of India paragraph 6 elaborates the Registration Process of Udyam Registration.

Under this paragraph the sub-paragraph (5) states the following:

"In case of a Company or a Limited Liability Partnership or a Cooperative Society or a Society or a Trust, the organisation or its authorised signatory shall provide its GSTIN and PAN along with its Aadhaar number."

What we understand from this sub-paragraph is that from 1st April 2021, PAN Card & GST Registration will be required to apply for Udyam Registration

While PAN is easily available for every Individual or Organization, it is not the same case when it comes to GST Registration. GST Registration comes with a lot of compliance and procedures which can be avoided by almost all new & small businesses. Under the provisions of the Central Goods and Services Tax Act, 2017 (12 of 2017) new and small businesses who are under a certain threshold limit of turnover can avoid getting registered under GST and not be liable for the compliance and collection of GST from their customers.

Paragraph 22 sub-section (1) of the Central Goods & Services Act under Chapter VI states the following:

"Every supplier shall be liable to be registered under this Act in the State or Union territory, other than special category States, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees:

Provided that where such person makes taxable supplies of goods or services or both from any of the special category States, he shall be liable to be registered if his aggregate turnover in a financial year exceeds ten lakh rupees"

As per the recent notification of the GST council the above information has the following addition:

"The threshold limit of aggregate turnover for exemption from registration and payment of GST for suppliers of goods is ₹40 Lakh (₹20 Lakh in the States of Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Puducherry, Sikkim, Telangana, Tripura and Uttarakhand) w.e.f. 01.04.2019."

Further, Paragraph 23 sub-section (1) of the act also states that:

"The following persons shall not be liable to registration, namely:––

(a) any person engaged exclusively in the business of supplying goods or services or both that are not liable to tax or wholly exempt from tax under this Act or under the Integrated Goods and Services Tax Act;

(b) an agriculturist, to the extent of supply of produce out of cultivation of land."

What we understand is that businesses falling under the exempt categories stated above need not apply for a GST Registration.

So now we are left with one important question,

Will MSMEs who are provided such exemption from GST Registration under the above provisions laid under the Goods and Services Act 2017 have to apply for a GST Registration to avail their Udyam Registration?

The answer is a simple NO.

On 5th March 2021 the Ministry of MSME through its notification S.O. 1055 (E) published in the official Gazette of India has clearly stated the following which is to be added in the initial notification S.O. 2119 (E):

"The exemption from the requirement of having GSTIN shall be as per the provisions of the Central Goods and Services Tax Act, 2017 (12 of 2017)."

This simply means that as long as the business is exempt from getting GST Registration under the GST Act, they can continue to enjoy the benefits while apply for Udyam Registration as well. It is no longer mandatory for such businesses to enter their GST Number while applying for their Udyam Registration.