GST relief for small firms, rates cut for many groups

Finance Minister Arun Jaitley, Revenue Secretary Hasmukh Adhia at the GST Council meeting on Friday. Prem Nath Pandey

Taking key decisions to significantly reduce the compliance burden of small companies and traders, the Goods and Services Tax Council Friday allowed them to file quarterly returns instead of monthly submissions, expanding the scope of the Composition Scheme for paying GST and making it easier for exporters to claim tax refund.

At its 22nd meeting which went on for nearly nine hours, the Council, chaired by Finance Minister Arun Jaitley, also reduced the tax rate on over two dozen goods and services  categories.

This comes two days after Prime Minister Narendra Modi, addressing concerns over implementation of GST, said that he had asked the Council to identify bottlenecks faced by small and medium enterprises. The government, he said, was ready to make amends to help small traders. Separately, Revenue Secretary Hasmukh Adhia, in an interview to The Indian Express, said moves to rationalise “processes” and “rates” across some product categories had been initiated to ease out the “pain points”. 

GST Council has done some work on rates to ease pain: Revenue Secretary Hasmukh Adhia

Briefing reporters after the Council meeting, Jaitley said the decisions announced will ease compliance burden on nearly 90 per cent of the tax assesses. These companies and individuals, he said, contribute only about 10 per cent of indirect tax collections. Rules for the remaining 10 per cent tax assesses, which mainly comprise large companies and contribute over 90 per cent of the GST collections, have been kept unchanged.

“Small people have lesser burden of paying taxes, but they have higher compliance burden,” Jaitley said, adding that the Council took a number of steps to make compliance with GST much simpler for small enterprises and traders.
“Those assesses who have turnover less than Rs 1.5 crore, instead of monthly returns, they can now file quarterly returns,” he said. Such taxpayers are required to pay taxes only on a quarterly basis, starting from October-December quarter. The registered buyers from such small taxpayers would be eligible to avail input tax credit on a monthly basis.

The government also allowed small service providers to operate across multiple states without registering with the GST Network. At present, anyone making inter-state taxable supplies is compulsorily required to register, irrespective of turnover. The GST Council has now decided to exempt those service providers whose annual aggregate turnover is less than Rs 20 lakh from obtaining registration even if they are making inter-state taxable supplies of services. To ease transportation problems of small unregistered businesses, the Council exempted Goods Transport Agencies from paying GST on services provided to an unregistered person.

The Council decided that taxpayers with total turnover up to Rs 1.5 crore shall not be required to pay GST at the time of receipt of advances on account of supply of goods. The GST on such supplies shall be payable only when the supply of goods is made.

Alongside these measures, to ensure speedy tax refunds to exporters, Jaitley said refunds for July and August will be processed within this month. The Council also exempted them from paying IGST (Interstate GST) till March 31, 2018. From April 1 next year, the government plans to create an e-wallet system for exporters — wherein they will be given a notional tax credit which will be adjusted against actual refunds later. “There is a lot of blockage of exporters’ tax credit, which impacts their liquidity,” Jaitley said, adding that the e-wallet will be a long-term solution which will permanently address this problem.

New steps announced help election-bound Gujarat in particular

On the e-way bill, a mechanism aimed at easing inter-state transfers, Jaitley said the system shall be introduced in a staggered manner with effect from January 1 and shall be rolled out nationwide with effect April 1 next year.
On the announcements made, Prime Minister Modi said the GST has become “even simpler” after GST Council’s recommendations. “Today’s recommendations will immensely help small and medium business,” he said in a tweet. “GST is in line with our constant endeavour to ensure interests of our citizens are safeguarded & India’s economy grows,” he said. The composition scheme has been made more attractive and other facilitation measures will make the GST even more people-friendly and effective, he said.

Composition Scheme

The Composition Scheme has been made available to taxpayers having annual aggregate turnover of up to Rs 1 crore as compared to the current turnover threshold of Rs 75 lakh. The facility of availing composition under the increased threshold shall be available to both migrated and new taxpayers up to March 31, 2018. Assesses availing the scheme are required to file quarterly returns.

This scheme is currently available to traders, manufacturers and restaurants. While the overall tax rate is much lower under the scheme, the assesses are not allowed to avail input tax credit. Traders have to pay tax at the rate of 1 per cent of the turnover, manufacturers at the rate of 2 per cent and restaurants at the rate of 5 per cent.

“The increase in the turnover threshold will make it possible for greater number of taxpayers to avail the benefit of easier compliance under the composition scheme and is expected to greatly benefit the MSME sector,” the Finance Ministry said.

As this scheme is not available to persons supplying services, its benefit was getting limited as even for goods suppliers, there was an element of service involved. To correct this anomaly, the government has said: “Persons who are otherwise eligible for composition scheme but are providing any exempt service (such as extending deposits to banks for which interest is being received) were being considered ineligible for the said scheme. It has been decided that such persons who are otherwise eligible for availing the composition scheme and are providing any exempt service, shall be eligible for the composition scheme.”

Jaitley said the Council decided to set up a Group of Ministers to “make the composition scheme more attractive”. The GoM will study whether traders making inter-state supplies can be allowed to avail the scheme.

On these measures, Deputy Chief Minister of Delhi Manish Sisodia said currently a trader based in Gurgaon supplying goods in Delhi cannot make use of the Composition Scheme. “There is need to liberalise the Scheme to allow inter-state supply of goods,” he said.

Relief to exporters

The Finance Ministry said that within the next four days, the held-up refund of IGST paid on goods exported outside India in July would begin to be paid. The August backlog would get cleared from October 18 onward. The permanent solution to cash blockage is that of e-wallet; which would be credited with a notional amount as if it is an advance refund. This credit would be used to pay IGST, GST etc.

The e-wallet system is planned to be made operational from April 1, 2018. “Specified banks and Public Sector Units (PSUs) are being allowed to import gold without payment of IGST. This can then be supplied to exporters as per a scheme similar to Advance Authorization,” the Ministry said. While a series of measures were announced to ease navigation of GST easier for small traders and exporters, there was no clarity on how the issues of the GSTN portal are being addressed.

Sisodia said that it emerged during the day long discussions that “the GSTN has been a big failure and the government should try to fix its accountability.” Since GSTN is a private company, the government should sign a service level agreement with it to ensure quality services, Sisodia said. He also suggested that the government do away with IGST due to which “Rs 70,000 crore” worth of tax collection is stuck.

Reacting to the Council’s announcements, Harishanker Subramaniam, National Leader, Indirect Tax, EY India said: “Big relief for exporters with exemption till March, refunds of July/Aug by October 18 and solution of e-wallet by April. Big relief to MSME by increase in threshold to 1 crore, quarterly returns/ payments for taxpayers under 1.5 crore with presumptive credits available in such cases for others. Some rate reductions, though not very significant, on expected lines… Still clarity awaited on Area Based Exemptions and Advance Ruling Authority hopefully by November 8, 9 Council meeting if not earlier.”

Chandrajit Banerjee, Director General, CII, said the SME sector compliance will greatly improve as limit for Composition Scheme has been increased to Rs 1 crore.