GST exemption doubled for MSMEs

In a big relief to the small and medium sector, ahead of general elections, the Goods and Services Tax (GST) Council on Thursday decided to double the annual exemption turnover limit for businesses to Rs 40 lakh from a current Rs 20 lakh. The exemption limit for the Northeast and the hill states has been increased to Rs 20 lakh from the current 10 lakh per annum.

This move is likely to benefit as many as 20 lakh micro, small and medium enterprises (MSMEs).

"There will be two tax slabs of Rs 40 lakh and Rs 20 lakh. The Rs 40 lakh (turnover limit) is for all the states and Rs 20 lakh for NE and hill states," said Finance Minister Arun Jaitley while briefing reporters after the 32nd meeting of the GST Council.

"The NE and hill states have been given the discretion to opt out if they want to raise the limit to Rs 40 lakh from Rs 10 lakh. They can move up," he added. Earlier also, when these states had an exemption limit of Rs 10 lakh, some states like Jammu and Kashmir and Assam amended their laws and increased the limit to Rs 20 lakh.

Jaitley, however, ruled out GST rate cuts, for now, saying that individual items will be considered for rate reduction only when the revenues will go up.

The revenue implication of all the decisions taken by the GST Council on Thursday is likely to be around Rs 3,000 crore. "It depends on how many avail the benefit. Though the businesses with up to Rs 20 lakh turnover were exempted from GST registration earlier, there were many who got registration for the purposes of benefiting from the GST chain. Therefore, the revenue loss is notional. There are still 10.93 lakh taxpayers who are below Rs 20 lakh revenue threshold limit and pay us taxes," said Revenue Secretary Ajay Bhushan Pandey.

"This will give much-needed relief to the small taxpayers and freelancers. It will enable them to concentrate on their business instead of worrying about GST compliances," said Parag Mehta, a partner at NA Shah Associates.

The GST Council also decided to increase the turnover threshold for composition scheme under the GST to Rs 1.5 crore from Rs 1 crore. With the increase in threshold, the small traders opting for the composition scheme will have simpler compliance.

Under this, traders and manufacturers have to file only one annual return while the tax compliance will be on a quarterly basis. This will be applicable from April 1, 2019. Currently, under composition scheme, one needs to file quarterly returns as against monthly returns and tax to be filed in other businesses. The traders, manufacturers, restaurants, and services availing composition scheme have to pay tax at a lower rate of 1 per cent, 5 per cent and 6 per cent respectively.

In the old excise regime also, businesses with a turnover of up to Rs 1.5 crore were exempted from the excise tax.

For the first time, service providers have also been brought under the composition scheme. Small service providers, with a turnover of Rs 50 lakh, will now be eligible for the composition scheme and will be taxed at 6 per cent. This applies to those who render services up to Rs 50 lakh per annum or render mixed supplies- services and goods - of the same value.

"The composition scheme for the small service providers is a welcome move as it eases the burden from compliance for MSMEs, however, it will add-on to the input cost for the recipients which will be a dampener," said Mahesh Jaising, a partner at Deloitte India.

The Council authorised Kerala to levy a maximum cess of 1 per cent for a period of 2 years to raise funds to carry out reconstruction after floods. "There is a provision in the GST law that the Council can permit some states to make a levy in order to cope up with natural disasters," Jaitley said.

Meanwhile, the issues relating to real estate and uniformity of tax on lottery have been referred to the Group of Ministers (GoMs). "There were diverse opinions on the two issues. We have set up a 7-member GoM, which will give recommendations to be considered in the next meeting. The ministerial panel on lottery issue will have representation from the concerned states," the FM added.

According to MS Mani, partner, Deloitte, the increase in the overall threshold and the composition limits with the inclusion of service providers and a single return for the year would relieve SMEs of their major pain points.

"Extension of the composition scheme to service providers would benefit small businesses, hopefully, the threshold will be increased in future at par with other composition dealers. The decision to refer the changes to a GoM indicates a desire to comprehensively cover the tax rate, input tax credit, and other issues - the sector will need to wait for some more time," he said.

"The increase in the threshold to Rs 40 lakh and reduction in the return filing requirements to one per year for composition dealers will reduce the number of returns to be filed on the GST portal and reduce the overall load."