Yesterday we set out the registration thresholds and the definition of aggregate turnover. Today we take the case that catches the largest number of businesses: the trader who also does a little service work on the side.

The rule, stated plainly

The ₹40 lakh threshold is available only to a person engaged exclusively in the supply of goods. This is the condition in Notification No. 10/2019-Central Tax, and the word "exclusively" is doing all the work.

The moment a person also makes a taxable supply of services, the higher limit is lost and the applicable threshold drops to ₹20 lakh — ₹10 lakh in Manipur, Mizoram, Nagaland and Tripura.

There is no blended limit. There is no proportionate calculation. You do not get ₹40 lakh on the goods and ₹20 lakh on the services. It is a cliff, not a slope: either you are exclusively in goods, or your limit is ₹20 lakh for everything.

The one relaxation

The CBIC has clarified that a person is still treated as supplying goods exclusively if his only service income is interest on deposits, loans or advances, which is exempt. Interest of this kind is ignored when testing exclusivity — though its value still forms part of aggregate turnover when you compute the limit.

That is the entire exception. Nothing else.

What this looks like in practice

Mr. Agarwal sells electrical fittings in Kolkata. Sale of goods for the year: ₹36 lakh. Installation charges billed separately: ₹3 lakh. Aggregate turnover ₹39 lakh, which looks comfortably below ₹40 lakh.

But he is not exclusively supplying goods. Installation is a service. His applicable threshold is therefore ₹20 lakh, which he crossed months ago. Registration is mandatory, and every rupee of both the goods and the installation is now within the GST net.

Change one fact and the answer changes. Had Mr. Agarwal sold fittings inclusive of installation under a single bundled contract at one price, the installation would arguably form part of a composite supply of goods — and the ₹40 lakh limit could survive. That is a genuine planning point, and we deal with the mechanics of bundling in Part 3 tomorrow. But it must reflect commercial reality. Restructuring the invoice while the substance of the deal stays the same is not planning; it is exposure.

A second case. A cloth merchant in Siliguri has goods turnover of ₹34 lakh and also lets out a first-floor godown for ₹6 lakh a year. Renting of commercial property is a supply of service. Aggregate turnover ₹40 lakh, applicable limit ₹20 lakh, registration mandatory — and GST then applies to the cloth as well as the rent.

Contrast that with a trader in Durgapur with goods turnover of ₹38 lakh and ₹1.5 lakh of fixed deposit interest. Interest is disregarded for the exclusivity test. Aggregate turnover ₹39.5 lakh against a limit of ₹40 lakh. No mandatory registration.

Same rupee amounts, opposite outcomes. The difference is what kind of income sits alongside the goods.

Where the threshold does not help you at all

Even a business well below every limit can be required to register. The ₹40 lakh benefit is not available to:

• persons required to register compulsorily under Section 24

• persons making intra-State supplies in States that opted out of the higher limit

• suppliers of ice cream and other edible ice, pan masala, tobacco and manufactured tobacco substitutes, fly ash bricks, building bricks and roofing tiles, among other notified goods

Section 24 requires registration irrespective of turnover for, among others:

• persons making inter-State taxable supply of goods (service suppliers have relief up to ₹20 lakh under Notification No. 10/2017-IT)

• casual taxable persons and non-resident taxable persons

• persons liable to pay tax under reverse charge

• persons supplying through an e-commerce operator required to collect TCS, with an exemption for certain service suppliers

• e-commerce operators, input service distributors, agents, and persons deducting TDS under Section 51

Consider a Kolkata artisan selling handicrafts worth ₹6 lakh a year on an online marketplace to buyers across India. Turnover is nowhere near any threshold. But inter-State supply of goods through an e-commerce operator triggers Section 24. Registration is mandatory from the very first rupee.

This one surprises people badly. A hobby business that turned serious on a marketplace platform is frequently unregistered and frequently in default without knowing it.

How to use this

Sit down with your last twelve months of billing and separate it into two columns: goods and everything else. If the "everything else" column has anything in it beyond interest income, your limit is ₹20 lakh. Then add every branch on your PAN, add exempt sales, and compare.

If you are anywhere near the line, register before you cross it rather than after. Voluntary registration is available at any time, costs very little, and eliminates the risk completely.

Tomorrow, in Part 3: A Diwali hamper sells for ₹2,000. Inside are dry fruits, chocolates, a candle and one bottle of aerated drink. What rate applies? The answer is not an average, and it is not the rate on the biggest item. We look at composite supply and mixed supply — and at how a single careless bundle can push an entire invoice into the 40% slab.