GST Council to extend big relief today; 222 items likely to be cut to 52 items in 28% bracket

Hounded from all sides over the shoddy implementation of the newly-introduced goods and services tax (GST), the decision making body for the new indirect tax GST Council that will be meeting today in Guwahati could look at further raising the threshold for composition scheme, move a large number of products under the highest tax bracket of 28% to a lower tax bracket and make tax filing procedures simpler by allowing more businesses to file returns on a quarterly basis.

According to sources aware of the changes that could be made by the Council to simplify the new indirect tax to ease the compliance burden on taxpayers, items such as shampoos and hair dyes, razor and razor blades, all categories of chocolate, scents, goggles, chewing gums and some of electronic goods that currently fall in the 28% bracket could be shifted to 18% bracket.

There is also a possibility that the current GST rate of 18% on some restaurant services could be reduced to 12%.

The source, who spoke anonymously, said that in order to do away with the confusion over AC and non-AC restaurants, the Finance Minister Arun Jaitley-headed GST Council may abolish the distinction between the two altogether.

Kerala Finance Minister Thomas Isaac told DNA Money that the government was in a "panicky mode" and is likely to bend backwards to meet the demands of the traders and businesses.

"BJP is in a panicky mode, virtually reducing (GST rate on) everything from 28% to 18% and from 18% to 12%. In the 28% bracket of GST, 222 items is likely be reduced to 52 items," he said.

According to the Kerala FM, there is also going to be presentation on bringing real estate under GST.

"There is no decision on real estate but there is going to be presentation (on whether it should be brought under GST)," he told DNA Money.

Another source, who did not want to be named, said three alterations could be expected in the composition scheme. Under this scheme, the rate for traders is 1%, for manufacturers 2% and for restaurants 5% today. This is likely to be made flat 2% for all of them.

The second tweak could see the current turnover threshold of Rs1 crore for the scheme to be doubled to Rs2 crore. This threshold has already been tinkered with twice; from Rs 50 lakh to Rs 75 lakh and then to Rs 1 crore.

The third expectation for composition scheme is that today if there is inter-state purchase or inter-state sale then you are not eligible for it; "this restriction is likely to go away. So even if there is inter-state purchase or sales, you can still opt for composition scheme if you are below the threshold limit".

According to the source, the return filing procedure could be made easier by allowing the GST Return (GSTR) -3B, a simplified form introduced for a few months, to continue for a year or so.

"The government may ask small businesses to pay tax every month but file returns on a quarterly basis. Only large businesses may be asked to file returns every month," he said.

The source said the Council may make it mandatory for GSTR-3B to be filed every months by everybody but GSTR-1, GSTR-2 and GSTR-3 could be filed only once a quarter by small businesses but will be required to be filed by large businesses every month.

"This way, they will not only reduce the compliance burden but they could also reduce the load on the GST network (GSTN) system," he said.

Isaac said the quarterly filing of returns could affect the input tax credit (ITC) claim of businesses.

"If you are going to decide like that there can be no ITC claim. But I think it will be done, not for everyone but only for dealers under the composition scheme," said the Kerala minister.

M S Mani, senior director of Deloitte India said, "There is a need to have serious relook at several consumer products which are presently classified at 28% as some of them are essentials. The classification of all electronic products at 28% irrespective of the purchasing power of the consumer may need to be reconsidered. Simplification of the return filing and other compliance processes should also be considered in order to increase the acceptance of GST among SMEs".

WHAT MAY BE ANNOUNCED

• The rate under composition scheme may be made flat 2% for traders, manufacturers and restaurants
   
• The current turnover threshold of Rs 1 crore for the scheme to be doubled to Rs 2 crore
   
• GST-3B, a simplified returns form introduced for a few months, would continue for a year or so
   
• The current GST rate of 18% on some restaurant services could be reduced to 12%