New Delhi: In a major relief to micro, small and medium enterprises (MSMEs), the GST Council on Thursday doubled the tax exemption limit to ₹ 40 lakh in annual revenue. The turnover limit for businesses availing of the GST composition scheme, which allows them to pay goods and services tax at a flat rate, was raised to ₹ 1.5 crore.
The move aims to allay the concerns of small traders, a core constituency of the ruling Bharatiya Janata Party (BJP).
For north-eastern and hilly states, the GST exemption limit has been doubled to ₹ 20 lakh. The decisions of the council, chaired by finance minister Arun Jaitley, will come into effect from 1 April.
However, states, especially Congress-ruled ones, who fear an erosion of their tax base, have been given a one-time option to stay at the present ₹ 20 lakh exemption limit if they notify the GST Council Secretariat within a week.
Revenue secretary Ajay Bhushan Pandey said two million taxpayers would benefit from a higher exemption limit, while the revenue loss would be notional.
“Even with the current threshold limit, there are 10.93 lakh taxpayers with turnover below ₹ 20 lakh, who are paying GST," said Jaitley. While eligibility was one aspect, the number of taxpayers actually opting for it might not be as high, he added.
“Some out of them may still want to be part of the GST chain. Some may require it for banking purposes. Some may actually opt in for composition scheme," he said.
The move to raise the threshold for GST registration is significant, considering that MSMEs have been hit by the November 2016 demonetisation move, business disruption in the early days of GST implementation and a credit squeeze in recent months.
Bringing about major changes in the composition scheme, the current turnover limit for goods was raised to ₹ 1.5 crore from ₹ 1 crore now. Service providers with a turnover limit of up to ₹ 50 lakh are now allowed to avail of the composition scheme as well at a rate of 6%. Those who avail of the scheme will have to file tax on a quarterly basis, though returns can be filed annually.
The composition scheme allows companies to do away with tedious tax filing formalities and pay GST at a flat rate.
Raising the limit for the composition scheme would ease tax compliance for many, said Abhishek A. Rastogi, a partner at law firm Khaitan and Co. “However, for service providers, keeping a limit of ₹ 50 lakh for registering under the composition scheme and at the same time increasing the exemption threshold to ₹ 40 lakh does not make much sense," he added.
The council also allowed Kerala to levy a calamity cess of 1% on intrastate sales for a maximum period of two years as recommended by a group of ministers headed by Bihar finance minister Sushil Kumar Modi.
On the contentious issues of reducing GST on under-construction properties and uniformity of taxes on lotteries, two separate group of ministers were constituted to build consensus.
Jaitley said the council would consider reducing GST on more items including cement when revenues move up. Cement is taxed at 28%, with a demand to reduce its GST rate to 18%.
Though Jaitley said the decisions were taken on a consensus basis at the GST Council, Bihar finance minister Modi tweeted that Congress-ruled states opposed every move of the council giving relief to MSMEs and small traders.
“Threshold limit increased from 20 to 40 Lakh in #gst. Kerala & Chattisgarh insisted on 20 lakh. So states given option either remain in 20 or 40 lakh. 50 lakh turnover & 6% tax rate for service providers in a new composition scheme in #gst. Again Chattisgarh & Congress ruled states wanted 8% GST. Outside Congress say lower tax rates & in meeting fight for higher tax rates," he wrote.
Assam finance minister Himanta Biswa Sarma tweeted: “Proposal for increasing threshold limit for #GST registration exemption was up to ₹ 75 lacs or at least ₹ 50 lacs annual turn over. Congress ministers including AAP resisted. @RahulGandhi must explain why he is against small traders."
Prime Minister Narendra Modi, in an interview to news agency ANI on 1 January, said the government wanted the threshold to be raised to ₹ 75 lakh.