GST exemption cup raised to Rs40 lakh

In a bid to provide relief to small taxpayers, especially micro, small and medium enterprises (MSMEs), the Goods and Services Tax (GST) Council decided to double the exemption threshold to Rs 40 lakh and hike the limit for composition scheme to Rs 1.5 crore from Rs 1 crore with effect from April 1. The threshold will be Rs 20 lakh for “some hilly/northeastern states”.

In its 32nd meeting, the Council also provided relaxation to composition scheme registrants to pay taxes quarterly and file a single annual return, along with extending the scheme to service providers and suppliers of goods and services up to a turnover of Rs 50 lakh with tax rate of six per cent.

States will have the option to choose between the two exemption thresholds — Rs 20 lakh and Rs 40 lakh — within a week’s time. With the hike in exemption threshold to Rs 40 lakh, about 20.64 lakh taxpayers, including composition scheme registrants, will have the option to move out of GST regime.

The annual revenue impact of the decision is estimated to be Rs 5,225 crore, assuming that 50 per cent of registered taxpayers will move out of GST, official sources said. The other 50 per cent is still expected to stay within the ambit of the indirect tax regime for supply chain benefits, sources said.

The Council also allowed Kerala to levy disaster cess on intra-state supply of goods and services within the state at a rate not exceeding 1 per cent for a maximum period of two years for revenue mobilisation in the aftermath of floods in the region last year.

Other proposals pertaining to rate cut on under-construction residential properties to 5 per cent and uniform tax rate for state-run and state-authorised lotteries were referred to two separate Group of Ministers (GoMs) after divergent views emerged in the Council meeting.

It is learnt that Opposition-ruled states, such as Punjab, raised concerns over lowering the rate on under-construction residential properties citing potential leakages and no assurance of benefits reaching the end-buyers.

Finance Minister Arun Jaitley said each one of the decisions taken by the Council is “intended to help the SMEs”. “For those who utilise the composition scheme, from April 1 onwards, it will be quarterly tax payment but only one annual return. So this takes off a lot of compliance burden on them,” Jaitley said.

Under the composition scheme, traders and manufacturers pay taxes quarterly at a concessional rate of one per cent, while restaurants pay five per cent GST. There are over 1.17 crore businesses which have registered under the GST, out of which over 19 lakh have opted for the composition scheme.

Free accounting and billing software shall also be provided to small taxpayers by GSTN, the Finance Ministry said in a statement.

On the rate cut on pending items such as cement, which is in the peak slab of 28 per cent, Jaitley said any further reductions would be considered only when revenues move up.

The Finance Minister also said that there will be a facility to “opt up or opt down” with the two thresholds, Rs 40 lakh and Rs 20 lakh, depending on revenue. For service providers, the threshold will continue to be the current Rs 20 lakh.

“A few states had a view that if the turnover threshold is hiked to Rs 40 lakh, their assessee base gets eroded. So if they inform the Secretariat within a week then they would be given the option to opt down. Puducherry has kept this option…this is a one time exception and does not affect businesses with inter-state supplies,” he said.

Official data shows that if the GST Council would have approved a higher exemption threshold of Rs 75 lakh, it would have resulted in a revenue loss of Rs 9,200 crore per year.

The option to choose between the two exemption thresholds was given as some states insisted on the current threshold of Rs 20 lakh. “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,” Bihar’s Deputy Chief Minister Sushil Kumar Modi posted on Twitter.

Revenue Secretary Ajay Bhushan Pandey said that even though the exemption limit currently is Rs 20 lakh, there are about 10.93 lakh taxpayers who are below Rs 20 lakh but are paying taxes under GST. “The increased (exemption) limit (of Rs 40 lakh) is applicable for those businesses who deal in goods and also do intra-state trade and not for those who do inter-state transactions,” Pandey said.

When GST was rolled out on July 1, 2017, the exemption threshold was fixed at Rs 10 lakh for hilly and northeastern states and at Rs 20 lakh for other states. Many hilly/N-E states, such as J&K and Assam, later opted for a higher exemption threshold of Rs 20 lakh.