Government’s GST relief to directly benefit small businesses

The GST council has raised the GST exemption limit in both normal as well as composite schemes, which will exclude small businesses from GST registration

Government’s GST relief to directly benefit small businesses

The Goods and Service Tax (GST) Council has given approval to the decision to raise the exemption limit for applicability of GST. The revised limit will be effective from 1st April 2019. 

As a result, states will have to choose between two exemption thresholds (Rs 20 lakh and Rs 40 lakh) and inform the Centre of their selection within a week. This approval will also effectively increase the turnover limit under the composition scheme to Rs 1.5 crore from the current Rs 1 crore. 

It must be noted that the threshold for the composition scheme was hiked to Rs 1.5 crore in November 2018, and this decision makes the hike applicable from the next fiscal year. It is estimated that around 50 per cent of taxpayers will slip out of the GST net as a result of this waiver, which would cost a revenue loss of Rs 5,200 crore to the department. 

Besides, the composition scheme will be extended to service providers as well, and the GST rate for real estate and lottery income remains undecided. Kerala will be allowed to add a disaster cess on the intra-state sale of goods and services for up to two years. 

The option of choosing either of the exemption limits by the states will, logically, be based on their assessee base and prospective revenue erosion.

What is GST and where is it applicable?

GST is an indirect tax that came into effect from 1st July 2017. It replaced a regime of multiple indirect taxes with its ‘one country one tax’ mantra. It flows down the production and trading process and is applicable on every value addition in goods and services.

It is applicable to all goods and service providers and consumers. For example, if you pay GST for the purchase of vegetables and poultry and collect GST from your customers who consume the food you prepare, you will only end up paying the GST for the value addition. In this case, it would be the GST collected for the food minus the GST already paid for the raw materials.

What are the current GST limits?

Taxpayers with an aggregate turnover of Rs 20 lakh are exempt from GST registration. This would include all income irrespective of the fact some portion of the income might be tax-free under GST. The composition scheme is applicable to taxpayers who opt for the scheme and have a turnover of less than Rs 1 crore. 

What is the composition scheme?

The composition scheme charges a fixed tax rate of 1 per cent and, as mentioned above, is applicable for taxpayers who opt for the scheme and have a turnover of less than Rs 1 crore. One can fill up the GST CMP-01 form and opt for the scheme. Taxpayers need to file returns on a quarterly basis and are not eligible for input credit. They are also not required to keep detailed records.

What will be the revised exemption limits and tax rates?

The states will be able to choose from two exemption limits of Rs 20 lakh and Rs 40 lakh. The composition scheme will see an increase in maximum turnover from Rs 1 crore to Rs 1.5 crore. Under the composition scheme, taxpayers will have to pay 1 per cent on turnover. Service providers with a turnover of up to Rs 50 lakh can opt for the composition scheme and pay 6 per cent as GST.

What would be the impact on states? 

The states will get an option to opt up to Rs 40 lakh or opt down to remain at Rs 20 lakh. Their assessee base will reduce as small businesses will fall out of the mandatory limit. This would also lead to reduced revenue from indirect taxes. It is expected to be a decision that will be taken while balancing the market expectation and the impact on state finances.

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