A founder incorporates a private limited company in Bengaluru in April, signs a ₹6 lakh consulting contract with a client in Gurugram in May, and decides GST registration can wait until revenue crosses ₹40 lakh. By the time the CA looks at the books in October, the company has made five months of unregistered inter-state supplies, cannot issue a single valid tax invoice for them, and has lost the input tax credit on ₹11 lakh of vendor bills. The ₹40 lakh number was real — it just never applied to this company.

This is the single most expensive misunderstanding in early-stage Indian company compliance. The threshold in Section 22 of the CGST Act is a floor for one narrow category of business. For most newly incorporated private limited companies, registration is triggered by Section 24 on day one, regardless of turnover.

What the law actually requires

Section 22(1), CGST Act 2017 makes every supplier liable to register in the State from which they make a taxable supply once aggregate turnover in a financial year exceeds ₹20 lakh. Notification No. 10/2019–Central Tax dated 7 March 2019 raised that to ₹40 lakh — but only for a person engaged exclusively in the supply of goods. A company that supplies any service (other than restaurant service) falls back to ₹20 lakh. In the eleven special category states listed in the proviso to Section 22(1), the limits are ₹20 lakh for goods and ₹10 lakh for services.

"Aggregate turnover" is defined in Section 2(6) and it is broader than founders expect. It includes taxable supplies, exempt supplies, exports and inter-state supplies, computed on an all-India basis across every GSTIN sharing the same PAN. It excludes CGST, SGST, IGST and cess, and excludes inward supplies on which the company pays tax under reverse charge. Exempt revenue counts towards the threshold even though it carries no output tax — a company with ₹18 lakh of exempt income and ₹3 lakh of taxable consulting income has crossed ₹20 lakh.

Section 24 overrides Section 22 entirely. It lists categories where registration is compulsory "notwithstanding anything contained in sub-section (1) of section 22" — meaning turnover is irrelevant. The clauses that catch new private limited companies are:

Section 24(i) — any person making an inter-state taxable supply. One invoice to a client in another state ends the threshold argument.
Section 24(iii) — persons required to pay tax under reverse charge. This is the clause most companies trip over. Under Section 9(3) read with Notification No. 13/2017–Central Tax (Rate), reverse charge applies to legal services from an advocate, goods transport agency services, sitting fees paid to a non-executive director, sponsorship, security services from a non-body-corporate, and — since 10 October 2024 — renting of commercial immovable property by an unregistered landlord to a registered recipient. Under Section 5(3) IGST Act, any import of service attracts reverse charge: a ₹4,000 monthly SaaS subscription billed from Delaware is enough.
Section 24(ix) — persons supplying goods or services through an e-commerce operator required to collect TCS under Section 52.
Section 24(vi) — persons required to deduct TDS under Section 51.
Section 24(viii) — Input Service Distributors, which became mandatory rather than optional from 1 April 2025 following the Finance (No. 2) Act 2024 amendment to Section 2(61) and Section 20.

Section 25(1) gives you 30 days from the date you become liable to apply. Section 25(3) permits voluntary registration below the threshold, and once granted, all provisions apply as if registration were compulsory — including monthly returns and the ₹40 lakh concession being lost permanently.

Note the incorporation-stage overlap. When a company incorporates through SPICe+ Part B, the linked AGILE-PRO-S form (INC-35) offers GST registration alongside EPFO, ESIC, professional tax and bank account opening. Founders routinely tick it without appreciating that a GSTIN issued on the date of incorporation starts the return clock immediately — GSTR-1 and GSTR-3B become due for a company with zero revenue, and nil returns are still mandatory under Section 39.

Practical implications

The cost of getting this wrong compounds in four directions.

Penalty under Section 122(1)(xi). A person liable to register who fails to do so is liable to a penalty of ₹10,000 or the amount of tax evaded or short paid, whichever is higher. On five months of unregistered inter-state supplies of ₹30 lakh at 18%, the exposure is ₹5.4 lakh in tax plus an equal penalty — not ₹10,000.

Interest under Section 50 runs at 18% per annum from the date the tax was due, and it is not waivable at the officer's discretion.

Best-judgement assessment under Section 63. For an unregistered person, the proper officer may assess tax liability on a best-judgement basis and may issue the order within five years from the due date of the annual return for the relevant financial year. That is a long tail of exposure sitting on the balance sheet during a funding-round due diligence.

Permanent loss of input tax credit. This is usually the largest number. Section 18(1)(a) allows credit on inputs held in stock on the day immediately preceding the date from which the company becomes liable to pay tax — but only if registration is applied for within the 30-day window in Section 25(1), and the claim is filed in Form ITC-01 within 30 days of becoming eligible. Miss the window and the credit is gone. Worse, credit on input services — the bulk of spend for a services company — has no equivalent transitional route at all. Legal fees, software subscriptions, co-working rent and audit fees incurred before registration are dead cost.

Invoice integrity. Under Section 31(3)(a), a registered person may issue a revised invoice for supplies made between the effective date of registration and the date of issue of the registration certificate, within one month of the certificate date. That relief covers the gap between liability and certificate — it does not retroactively legitimise invoices raised before you were registered at all. Your customer's own GSTR-2B will never show that credit, and enterprise clients will withhold payment until it does.

Downstream flags. Prosecution under Section 132 attaches where tax evaded exceeds ₹1 crore, with imprisonment up to one year (₹1–2 crore), three years (₹2–5 crore) or five years (above ₹5 crore). Separately, a GST default in the books surfaces during MCA scrutiny: AOC-4 financials that show turnover inconsistent with the GST profile linked to the same PAN are exactly the kind of mismatch MCA21 v3's data-validation layer is designed to surface, and an auditor is obliged to report the non-compliance under CARO 2020 clause 3(vii).

Step-by-step: what to do

Determine your trigger date, not your threshold date. Go through Section 24 clause by clause before you look at turnover. Ask three questions: have we invoiced any customer outside our home state; do we pay any vendor covered by reverse charge, including any foreign software subscription; do we sell through any marketplace. A "yes" to any of these means you were liable from the date of that first transaction.
Compute aggregate turnover correctly. Add taxable, exempt, export and inter-state supplies across all GSTINs on the same PAN. Exclude GST itself and exclude RCM inward supplies. Do this monthly, not annually — the 30-day clock in Section 25(1) runs from the day you cross, not from year end.
File Form GST REG-01 on the portal. Part A captures PAN, mobile and email for OTP validation; Part B carries the constitution documents (certificate of incorporation, MOA/AOA, board resolution), principal place of business proof, bank details and authorised signatory details. Under Rule 8(4A), the authorised signatory must complete Aadhaar authentication, and in notified states biometric verification at a GST Suvidha Kendra.
Track the Rule 9 timeline. Where Aadhaar authentication succeeds, the officer must act within seven working days. Where it fails or is not opted for, the application goes to physical verification of premises and the window extends to thirty days. A deficiency notice comes as REG-03 and you have seven working days to reply in REG-04 — miss that and the application is rejected under Rule 9(4), and you start again with the liability clock still running.
Claim transitional credit immediately. File Form ITC-01 within 30 days of becoming eligible for credit on inputs and capital goods held in stock, certified by a chartered accountant where the claim exceeds ₹2 lakh.
Issue revised invoices under Section 31(3)(a) for every supply made between the effective date of registration and the certificate date, within one month of the certificate.
Start the return cycle from month one. GSTR-1 by the 11th, GSTR-3B by the 20th (or the QRMP quarterly cycle with monthly PMT-06 payment if turnover is below ₹5 crore). Nil returns are mandatory. Late filing blocks the next period's GSTR-1 under Rule 59(6).
Decide on the composition scheme separately. A company with turnover up to ₹1.5 crore supplying goods may opt in under Section 10 using Form CMP-02 before the start of a financial year — but it cannot claim input tax credit, cannot make inter-state outward supplies, and pays 1% of turnover. For a service company the alternative composition route under Notification No. 2/2019 caps at ₹50 lakh at 6%.

FAQ

Our company has zero revenue but a GSTIN issued via SPICe+. Do we file returns?
Yes. Once registered, Section 39 obliges you to file nil GSTR-1 and GSTR-3B every period. Late fee is ₹20 per day for nil returns, capped at ₹500 per return.

We only pay one foreign SaaS vendor. Does that really force registration?
Yes. Import of service attracts reverse charge under Section 5(3) IGST Act, and Section 24(iii) makes registration compulsory for any person liable to pay tax under reverse charge — irrespective of turnover or the size of the payment.

Can we cancel a voluntary registration once we realise we were below the threshold?
Under Section 29(1)(c) you may apply for cancellation in Form REG-16. You must first reverse credit on stock and capital goods under Section 29(5), file all pending returns, and file the final return in GSTR-10 within three months.

We supply only goods, all within Karnataka. Is ₹40 lakh safe?
Only if you supply no services at all, are not covered by any Section 24 clause, and do not supply ice cream, pan masala or tobacco — those three are excluded from the ₹40 lakh concession by the notification itself.

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