GST exemption limit doubled in relief to small businesses
Analysts say this is another attempt by the Bharatiya Janata Party (BJP)-led government to woo a key constituency ahead of the 2019 general election.Updated: Jan 10, 2019 22:45 IST
Offering major relief to small businesses, the GST Council on Thursday announced changes to the goods and services tax (GST) rules aimed at easing the burden of compliance on them and exempted an additional 2 million such businesses from registering with the indirect tax regime.
Analysts say this is another attempt by the Bharatiya Janata Party (BJP)-led government to woo a key constituency ahead of the 2019 general election. In the past three weeks, the BJP-led National Democratic Alliance (NDA) government has tightened rules for e-commerce so as to benefit small traders and retailers; pushed through Parliament a law promising 10% reservation in government jobs and college seats for the upper castes, and also discussed sops for farmers.
The council has doubled the GST exemption threshold for businesses to Rs 40 lakh annual turnover from April 1, finance minister Arun Jaitley said after the 32nd meeting of the council.
Jaitley heads the council, which counts state finance ministers as its members.
He explained that not all 2 million eligible for the exemption may avail it. “Eligibility and entitlement are one aspect. How many actually do it may not be the same because some of them still want to be the part of GST chain.”
The plan was to have a higher exemption threshold up to Rs 75 lakh, but finance ministers belonging to states ruled by the Opposition did not agree, officials with direct knowledge of the matter said on condition of anonymity. State finance ministers are members of the GST Council, a federal body where all decisions are taken on the basis of consensus.
In a tweet after the meeting, Assam’s finance minister Himanta Biswa Sarma said the Congress and the Aam Aadmi Party (AAP) resisted this. “ @RahulGandhi must explain why he is against small traders,” Sarma tweeted, targeting the Congress president .
For businesses in the northeast and so-called hilly states, the exemption limit was again doubled to Rs 20 lakh (the threshold is lower in the region because it has smaller businesses). However, states have been given some amount of leeway — those with a Rs 20 lakh threshold can up it to Rs 40 lakh, and those with a Rs 40 lakh threshold can bring it down to ~20 lakh. This will be a a one-time provision for states to either increase of decrease this limit depending on their revenue considerations. “States would have an option to decide about one of the limits within a week’s time,” a statement released by the government said.
According to the government officials familiar with the matter, Opposition-ruled states, particularly ones ruled by the Congress and the Left, did not want the exemption to be raised. After the council meeting, Bihar finance minister Sushil Kumar Modi tweeted: “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”. In another tweet, he said that the Congress-ruled states opposed “every move” of the council to give relief to micro, small and medium enterprises (MSMEs) and small traders.
In order to provide relief to small businesses, the council also increased the turnover limit for the existing composition scheme from Rs 1 crore to Rs 1.5 crore . The scheme has also been extended for service providers with an annual turnover of Rs 50 lakh at the rate of 6%. The scheme was introduced to save small GST payers from the tax’s cumbersome procedures, which they could escape by paying tax at a fixed rate. Simplifying procedures for small enterprises, the council allowed them to file only an annual return in place of quarterly returns. They will, however, be required to pay tax every quarter.
PwC India partner-GST and indirect tax, Anita Rastogi ,said that the changes have covered service providers under a composition scheme. “Accordingly, service providers [including persons undertaking mixed supplies of goods and services] with aggregate annual turnover up to Rs 50 lakh will have the option to pay lower GST at the rate of 6%. This will bring cheer to small service providers”.
The council also permitted Kerala to levy a calamity cess at a rate not exceeding 1% for a maximum period of two years to help its recovery from the August floods. Abhishek Jain, tax partner, EY India, said, “While this additional levy should help Kerala victims, companies as well as GSTN [GST Network] would need to modify their IT systems for incorporating this change. Also, to some extent it dilutes the One Nation One Tax concept.”
The council could not arrive at a consensus on two hot-button issues — tax relief to the real estate sector and a uniform rate of tax on lotteries. The council referred to these issues to two separate groups of ministers.
Jaitley also ruled out more immediate rationalisation in rates. This could happen in time as revenue increases, he explained.
First Published: Jan 10, 2019 22:45 IST