How will doubling of GST exemption limit benefit small businesses?

Recently, a major breakthrough in the GST has come across which is surprisingly good news for the MSME sector.

The GST department has decided to increase the exemption limit For MSME's which will seriously affect the businesses in a positive way.

A major announcement which will ease the burden for Composition Dealers, Supplier of Goods and the Government is also providing Free Accounting and Billing Software for Small Taxpayers.

Read On.

Let's see how this recent doubling of the GST Exemption Limit can benefit MSME.

We have tried to cover all these recent changes in GST Exemption Details as well as give our views on how each decision taken by the GST Council can benefit your business.

Let's start,

The GST Council in its 32nd Meeting held on 10th January 2019 under the Chairmanship of the Union Minister of Finance & Corporate Affairs, Shri Arun Jaitley in New Delhi took the following major relief to MSME's (including Small Traders) among others -

1st Major Decision:

Increase in Turnover Limit for the existing Composition Scheme:

The limit of Annual Turnover in the preceding Financial Year for availing Composition Scheme For Goods shall be increased to Rs 1.5 crore. The Special Category States will decide, within one week, about Composition Limit in their respective State.

Compliance Simplification:  The compliance under Composition Scheme shall be simplified as now they would need to file one Annual Return but Payment of Taxes would remain Quarterly (along with a simple declaration).

How this will affect the MSME:

The limit for availing composition scheme for goods shall be to 1.5 crore which was earlier 1 crore. This will benefit many SME's whose turnover is under 1.5 crore.

'The Special Category States ' shall mean the States as specified in sub-clause (g) of clause (4) of article 279A of the Constitution currently following  states fall under this category:

Arunachal Pradesh,  Assam,  Jammu & Kashmir,  Manipur,  Meghalaya,  Mizoram,  Nagaland,  Sikkim,  Tripura,  Himachal Pradesh, & Uttarakhand.

To ease the compliance burden from 1st April 2019, the composition Dealers will be required to file only one annual return( which was earlier quarterly). This indicates the seriousness of the government to solve the difficulties faced by the composition dealers. However, the payment of tax should be done Quarterly (along with simple declaration).

Conclusion: Now the Headache of filing the return for the Composition Dealers and MSME's reduced from 4 to 1 which is a Major Relief.

2nd Major Decision:

Higher Exemption Threshold Limit for Supplier of Goods:

There would be two Threshold Limits for exemption from Registration and Payment of GST for suppliers of Goods i.eRs 40 Lakhs and Rs 20 Lakhs. States would have an option to decide about one of the limits within a weeks time. The Threshold Limit for Service Providers would continue to Rs 20 Lakhs and in case of Special Category States at Rs 10 Lakhs.

How this will affect the MSME:

States would have an option to decide about one of the limits within a weeks time.

If the states do not want to raise the threshold, they can communicate to us within the next few days and then accordingly they will be kept out of it, Ajay Bhushan Pandey, Revenue Secretary.

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.

If the state decides not to increase the threshold limit, then increased exemption limit will not benefit the suppliers of goods whose turnover is above 20 Lakh but below 40 Lakhs deal and is doing intra-state trade.

For inter-state traders, this increased exemption limit will not benefit as they have to take GST Number for movement of goods except if they supply exempted goods only.

Conclusion: The option resides with the State to take advantage of the higher threshold limit of 40 Lakhs.

3rd Major Decision:

Composition Scheme for Services:

A Composition Scheme shall be made available for Supplier of Services (or Mixed Suppliers) with the Tax Rate of 6%(3% CGST + 3%SGST) having an Annual Turnover in the preceding Finacial Year is up to  Rs 50 Lakhs.

How MSME's will be affected:

It will benefit the supplier of small scale service providers whose turnover in the preceding Financial Year is up to  Rs 50 Lakhs.

The Tax rate of most of the services is currently 12% or 18% which will be reduced to 6% if the supplier of service opts for composition scheme.

Deloitte India Partner Mahesh Jaising said 'composition scheme for service providers is a welcome move as it eases burden from compliance.'

He further added 'The Composition service provider is likely to be not eligible for input credit and consequently, output tax of 6 per cent will be indirectly non-creditable for the Companies. The recipients will have to bear the taxes indirectly which will add to the input cost.'

Conclusion: Well, we agree with Mahesh Jaising, but it will benefit those businesses who have the minimum or no input credits such as small Software Developers, Coaching Classes, Gyms, Preschool owners, etc.

4th Major Decision:

Effective Date: The decisions at SI. No. 1 to 3 above shall be made operational from the 1st of April, 2019.

How MSME's will be affected:

The Major Changes Mentioned above will be effective from 1st April 2019. For those who utilize 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 from them.

5th Major Decision:

Free Accounting & Billing Software shall be provided to Small Taxpayers by GSTN

How MSME's will be affected:

MSME's will get free Accounting & Billing Software which can help the small MSME in Accounting and Procedures.

6th Major Decision:

Matters referred to Group of Ministers:

1. A seven Member Group of Ministers shall be constituted to examine the proposal of giving a Composition Scheme to Boost the Residential Segment of the Real Estate Sector.
2. A Group of Ministers shall be constituted to examine the GST Rate Structure on Lotteries.

7th Major Decision:

Revenue Mobilization For Natural Calamities:

GST Council approved Levy of Cess on Intra-State Supply of Goods and Services within the State of Kerala at a rate not exceeding 1% for a period not exceeding 2 years.

How MSME's will be affected:

This additional levy should help Kerala victims whereas companies, as well as GSTN, would need to modify their IT systems for incorporating this change.

Final View 

MSME's sector has been growing given that it still requires flexibility and we are happy that Government took the first step towards it and we hope in the coming years MSME's sector will continue to flourish. Well, it depends on how quickly and efficiently will these changes be incorporated in the GST system. Also, the ease of filings for MSME businessmen has been eased and made straightforward.

Prime Minister Narendra Modi said 'We are formulating policies so that they do not face cash flow squeeze and that they get easy credit from banks, while the environmental and other clearances come faster, adding that businesses flourish when rules are simpler.'

Note: All the Views expressed in the article are personal and well-researched by our Team Experts. 

The author can be reached at https://blog.incfo.in or subrato@incfo.in