The Goods and Services Tax (GST) Council approved a series of measures aimed at benefiting small businesses, such as a doubling of the exemption threshold to Rs 40 lakh and an increase in the turnover limit for service providers looking to avail of the low-compliance composition scheme.
“There were several items in today’s meeting that dealt with structure and procedure… We raised the composition scheme limit to Rs 1.5 crore from Rs 1 crore,” said Union finance minister.
Arun Jaitley, who also heads the council. “The decision will be applicable from April 1, 2019.”
While the exemption limit for registration and payment of GST has been raised to Rs 40 lakh from Rs 20 lakh for suppliers of goods, states would have flexibility to decide on one of those in a week. The threshold will be doubled to Rs 20 lakh from Rs 10 lakh in northeastern and hilly states. However, for service providers it will stay at Rs 20 lakh and Rs 10 lakh in special category states.
“We have decided to continue with twin structure with two slabs. While the Rs 20 lakh threshold has been doubled to Rs 40 lakh, for smaller states, the exemption has been kept at Rs 20 lakh,” Jaitley said. The minister said states will have option to “opt up” to higher limit and those concerned about erosion of assessee base can “opt down”.
Congress-ruled states led by Puducherry and Chhattisgarh opposed the move to raise the threshold. Though the original proposal was to raise it to Rs 50 lakh, it was pegged at Rs 40 lakh to arrive at a consensusbased decision.
The exercise is part of ongoing refinements that the council has been making since GST was rolled out on July 1, 2017. Over this period, it has sought to lower the GST rates on most items of regular use while only retaining luxury or sin goods in the top slab to ease the burden on consumers.
The composition scheme will be available to services and mixed goods and services suppliers with a tax rate of 6% — 3% central GST and 3% state GST — if they had annual turnover of Rs 50 lakh in the preceding financial year, Jaitley said. The composition scheme is meant for smaller businesses, allowing them to pay a flat rate and involving less-onerous documentation. On the other hand, such companies can’t claim input tax credit.
The GST Council also decided that those opting for the composition scheme would need to file their returns only once a year to further ease the compliance burden from quarterly filing now, Jaitley said. The tax payment mode, however, would continue to be on a quarterly basis. This facility will also be applicable from April 1.
“Allowing filing of just one return in a year for taxpayers under composition scheme is a positive step towards reducing the compliance burden being faced by small taxpayers and shall also help to reduce load on GSTN (GST Network) portal,” said Pratik Jain, partner and national indirect taxes leader, PwC.
Industry welcomed the move “By raising thresholds of various GST categories, the council has signalled its intention to facilitate MSME compliances and promote ease of doing business,” said Confederation of Indian Industry (CII) director general Chandrajit Banerjee. “Initiating a composition scheme for the services enterprises is a landmark step and will integrate these enterprises with their manufacturing counterparts.
“This is one of the most crucial decisions of the council and would indeed help a large number of taxpayers,” said Federation of Indian Chambers of Commerce & Industry (Ficci) president Sandip Somany. “It is a big step in the right direction and I am confident that going forward the council may consider increasing it further.”
GOM FOR PENDING ISSUES
The GST Council decided to set up a seven-member group of ministers (GoM) to examine the proposal for a composition scheme for the real estate sector and also to look at the tax rate structure of lotteries. This was decided after differences arose between state finance ministers on operational aspects. The real estate proposal entailed imposing GST of 5% on flats that are under construction. State-owned lotteries face a 12% slab, while state-authorised ones attract 28%.
The GSTN will also provide free accounting and billing software to small taxpayers, the council said.
The council also considered a GoM report on imposing a cess in the case of calamities and natural disasters. The GoM had been set up after Kerala sought a cess after being hit by floods in August last year.
“Kerala is now entitled to impose a maximum cess of 1% on intra-state sales for a maximum period of two years,” Jaitley announced, adding that the GST Council can allow states to levy a cess in the event of natural disasters.
EY India tax partner Abhishek Jain said, “While this additional levy should help Kerala victims, companies as well as GSTN would need to modify their IT systems for incorporating this change. Also, to some extent it dilutes one-nation-one-tax concept.”