Small businesses under the Goods and Services Tax (GST) are set to receive a fresh booster dose with a proposed flat rate of 1 per cent for all three categories of composition dealers — traders, manufacturers and restaurants. The existing rates for these categories are 1, 2 and 5 per cent respectively. An increase in the annual turnover threshold for the composition scheme to Rs 1.5 crore from the revised limit of Rs 1 crore, and a 12 per cent GST rate for both AC and non-AC restaurants, too, have been proposed in the slew of recommendations finalised by the Group of Ministers (GoM) constituted to make the composition scheme more attractive, two state finance ministers who were part of the meeting, said.
The second meeting of the panel was held on Sunday. The GoM has also proposed a rebate for traders and manufacturers who differentiate between exempted and non-exempted supplies under the composition scheme. Typically meant for small kirana stores, the distinction between exempted and non-exempted supplies would imply a lower tax rate of 0.5 per cent on the total turnover under the composition scheme; otherwise, it would be 1 per cent, the ministers said.
If approved by the GST Council, this will be the second round of relief measures for small and medium businesses within a month. The GST Council had approved a first round of relief measures in its October 6 meeting; the next meeting is scheduled in Guwahati on November 10, where a final call will be taken on the GoM’s recommendations.
“The biggest recommendation has been simplification of the composition scheme by proposing to reduce the tax rate to a flat 1 per cent for all traders, manufacturers and restaurants under the scheme. The GoM has also proposed a hike in the threshold for composition scheme to Rs 1.5 crore. This would require changes in the law as that had defined the maximum limit for composition scheme to be Rs 1 crore. So, in CGST law, we will propose the maximum limit to be raised to Rs 2 crore and implement Rs 1.5 crore as the threshold for composition dealers,” one of the state finance ministers said.
The threshold for composition scheme was raised to an annual turnover of Rs 1 crore from Rs 75 lakh in the GST Council’s October 6 meeting.
Though the GoM has proposed to abolish the distinction between AC and non-AC restaurants through a common GST rate of 12 per cent, the decision on whether to provide input tax credit will hinge on the revenue implications, the second state finance minister said.
For restaurants in hotels, the GST rate is proposed to be 18 per cent for restaurants in hotels with a tariff of Rs 7,500 and above per night, and 12 per cent for restaurants in hotels with a tariff below Rs 7,500 per night, he said.
The GoM has also proposed the inclusion of inter-state sales for traders and manufacturers in the composition scheme, the second state finance minister said. The decision on whether to allow input tax credit for the same is yet to be finalised, the minister added.
Apart from the simplified processes, the GoM has also proposed a reduction in late filing penalty. “The broad consensus of the GoM is to facilitate simplification of returns, HSN codes and invoice matching. In relation to this, we have also proposed reduction in late filing penalty to Rs 50 per day from the current Rs 100 per day. Also, we have recommended quarterly returns for all categories of taxpayers,” a state finance minister said.
The GoM has also proposed inclusion of job work for manufacturers under the composition scheme, which is not allowed at present, he said. “The small manufacturers felt that their machines are idle for 2-3 months, so they should get a chance to include job work if they have opted for composition scheme and so we will recommend the same to the Council.”
The five-member GoM, headed by Assam Finance Minister Himanta Biswa Sarma, has also said that all business-to-consumer transactions should reflect prices inclusive of GST in their invoices. “In the earlier regime, customers were not aware of the excise levied on the items in a retail transaction. So, it should continue that way, as for consumers, only MRP is important,” one of the ministers said.
The panel, consisting of Bihar Deputy Chief Minister Sushil Kumar Modi, Jammu and Kashmir Finance Minister Haseeb Drabu, Punjab Finance Minister Manpreet Singh Badal and Chhattisgarh Commercial Taxes Minister Amar Agrawal, was announced by Finance Minister Arun Jaitley after the GST Council meeting on October 6 to “make the composition scheme more attractive”.
The terms of reference for the GoM included examining whether turnover of exempted goods can be excluded from the total turnover threshold for levying tax under the composition scheme along with looking into the tax structure of different categories of restaurants, with “a view to their possible rationalisation/reduction”.
In the October 6 meeting, the GST Council had taken several decisions to significantly reduce the compliance burden of small companies and traders by allowing them to file quarterly returns instead of monthly submissions, expanding the scope of the composition scheme, and making it easier for exporters to claim tax refunds.
The measures taken for the MSME sector by the GST Council earlier this month included an increase in the turnover threshold for the composition scheme to Rs 1 crore as compared to the earlier turnover threshold of Rs 75 lakh.
The GST Council had also allowed assesses with a turnover of less than Rs 1.5 crore to pay taxes and file returns quarterly instead of monthly, starting from the October-December quarter. The Council had also allowed small service providers to operate across multiple states without registering with the GST Network, and had exempted service providers with an annual aggregate turnover of less than Rs 20 lakh from obtaining registration even if they were making inter-state taxable supplies of services.