NEW DELHI: As part of an attempt to make life simpler for small businesses, the Goods and Services Tax (GST) Council decided on Thursday to double the registration limit for manufacturing units, kirana and garment stores to an annual turnover of Rs 40 lakh, while opening a window for service providers such as beauty parlours to pay tax at a flat rate without having to file detailed returns.
Coming weeks before general elections are announced, the move is seen as an attempt to assuage small traders and businessmen, who have been complaining about high compliance burden.
Last month, the Council, led by Union finance minister Arun Jaitley, had reduced levies on several items as part of the tax rationalisation drive meant to benefit consumers. Thursday’s decision comes a day after the government got Parliament’s nod for a 10% quota for economically weaker sections from upper castes, a move seen as an outreach to a key political constituency.
“Every decision is intended to help MSMEs (micro, small and medium enterprises). We have given them various options,” Jaitley told reporters after the meeting, at which some Congress-ruled states such as Chhattisgarh and Puducherry initially opposed the simplification.
This time the government opted to double the registration limit for goods manufacturers and traders, while raising the limit for the composition scheme from an annual turnover of Rs 1 crore to Rs 1.5 crore.
The composition scheme comes with a flat levy of 1% of turnover, and businesses will now have to only file an annual return, although tax payment will have to be deposited every quarter. Businesses opting for the facility are not entitled to claim input tax credit. Now, the benefit of the composition scheme has been extended to service providers with a flat levy of 6%, which the government hopes will result in more small players coming into the tax net.
GoMs to decide on GST on lottery, real estate
The GST Council decided to set up two ministerial panels to review taxation structure for lotteries and suggest a roadmap for possible reduction in levy on under-construction residential property.
The GST Council opted to make a distinction between goods manufacturers and sellers and service providers — something that had been dispensed with to make the tax regime uniform from July 2017. Now, the two segments will have different thresholds and states and Union territories have also been given flexibility in deciding their own limits for goods. Puducherry is expected to have a lower threshold, while Delhi deputy CM Manish Sisodia and Kerala finance minister Thomas Isaac said they would soon take a call.
While Jaitley said this was a one-time exception, tax practitioners appeared worried. “Different thresholds for service providers and dealers of goods and varying limits across states in case of goods would bring back complexity and would be similar to the VAT era,” said M S Mani, partner at consulting firm Deloitte India.
Officials as well as consultants said the difference was due to a lower threshold for service providers under the composition scheme. “Since GST is a common tax on all goods services, from a policy standpoint it may be better to keep the same threshold for both. In that case, for service providers possibly the composition scheme limit would need to be fixed higher than Rs 50 lakh to, say, Rs 75 lakh. Nonetheless, this is a major relief for small businesses.”