GST burden on small businesses eased

The GST Council in its 32nd meeting  — the last before the Budget — took a slew of decisions aimed at reducing the tax and compliance burden on small and medium enterprises, including increasing the threshold limit below which companies are exempt from GST, extending the Composition Scheme to small service providers, and allowing small companies to file annual returns.

The annual turnover limit under which companies would be exempt from GST has been raised to ₹40 lakh for most States and ₹20 lakh for the North Eastern and hill states, from the earlier limit of ₹20 lakh and ₹10 lakh, respectively.

The limit for eligibility for the Composition Scheme is raised to an annual turnover of ₹1.5 crore from April 1, 2019. So far, only manufacturers and traders were eligible for this scheme. The Scheme now has been extended to small service providers with an annual turnover of up to ₹50 lakh, at a tax rate of 6%.

Kerala can levy a cess of up to 1% for up to two years on intra-State supplies to help finance the disaster relief efforts following the recent floods in the state.

Implications and outcomes of these measures:

A very large part of GST revenue comes from the formal sector and large companies. These measures have been taken to help the small and medium companies. The revenue impact due to these will be minimal.

Allowing disaster cess of 1% to be introduced in the State of Kerala on local supplies may be an administrative issue for both businesses and government and this may set a precedent for other States to demand additional levy.

Increasing the GST threshold limit would allow about 10 lakh traders to be exempt from the compliance burden of GST, and increasing the Composition Scheme limit would benefit about 20 lakh small businesses that fall between the annual turnover brackets of ₹1 crore and ₹1.5 crore.

The Composition Scheme currently allows companies with an annual turnover of up to ₹1 crore to opt for it, and file returns on a quarterly basis at a nominal rate of 1%

The GST council is the key decision-making body that will take all important decisions regarding the GST. The GST Council dictates tax rate, tax exemption, the due date of forms, tax laws, and tax deadlines, keeping in mind special rates and provisions for some states. The predominant responsibility of the GST Council is to ensure to have one uniform tax rate for goods and services across the nation.

The Goods and Services Tax (GST) is governed by the GST Council. Article 279 (1) of the amended Indian Constitution states that the GST Council has to be constituted by the President within 60 days of the commencement of the Article 279A.

According to the article, GST Council will be a joint forum for the Centre and the States. It consists of the following members:

  • The Union Finance Minister will be the Chairperson
  • As a member, the Union Minister of State will be in charge of Revenue of Finance
  • The Minister in charge of finance or taxation or any other Minister nominated by each State government, as members.

Article 279A (4) specifies that the Council will make recommendations to the Union and the States on the important issues related to GST, such as, the goods and services will be subject or exempted from the Goods and Services Tax.

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