To bring simplicity and to reduce the compliance cost for the small taxpayers, the GST Council in its 22nd meeting has decided to allow taxpayers with Rs 1.5 crore to file quarterly returns and at the same time increased the threshold for composition scheme to Rs. 1 crore from the present Rs. 75 lakh.
“For small businesses the tax burden is low, but the compliance pressure is greater. Members examined the provisions and after detailed study we found that large companies/taxpayers contribute to 94-97% of the taxes filed. Medium and small taxpayers need to be in the tax net so that the tax base keeps increasing, but their compliance burden should be reduced,” said Finance Minister, Arun Jaitley.
Jaitley added that there is a large chunk of taxpayers in the Nil category, but have opted for GST registration. There are also a large number of taxpayers who have an annual turnover of Rs 1 crore or less. “This is big taxpayer base, of which 15.5 lakh are the ones who have opted for the composition scheme. Under composition scheme you need to file quarterly returns and hence it has been decided that taxpayers with turnover Rs. 1.5 crore, will also now file quarterly returns instead of monthly returns. About 90 % assesses will be covered by this scheme. Anyone above Rs 1.5 crore turnover will continue with the current system” said Jaitley
The composition levy is an alternative method of levy of tax designed for small taxpayers whose turnover is up to Rs. 1 crore and pays a flat rate of tax regardless of what they manufacture, provide as a service or trade they carry on. Moreover, it is optional and the eligible person opting to pay tax under this scheme can pay tax at a prescribed percentage of his turnover every quarter, instead of paying tax at normal rate.
Manufacturers under this scheme pay 2% ( 1% Central tax plus 1% State tax) of the turnover, Restaurant Services pay 5% ( 2.5% Central tax plus 2.5% SGST) of the turnover and Traders or any other supplier eligible for composition levy pays 1% ( 0.5% Central tax plus 0.5% State tax) of the turnover.
“Increasing the composition threshold from Rs 75 lakh to Rs 1 crore and changing the periodicity of filing return and paying tax from monthly to quarterly for dealers with turnover upto Rs 1.5 crore, are definitely steps in the right direction. This would substantially ease the compliance for the SMEs sector and settle their nerves. Quarterly return filing means that the immediate need to invest in IT infrastructure for monthly online filings is no more required, as SMEs can continue to get the quarterly compliance done through their CAs and accountants using their IT infrastructure. Thus, reducing their GST compliance cost,” says Harpreet Singh, Partner – Indirect Taxes, KPMG India.
Singh adds that the increase in composition scheme threshold would imply that now more dealers with turnover between Rs 75 lakh and Rs 1 crore can opt for this simplified compliance scheme, where tax needs to be paid at flat rate and return filing is quarterly.
Areas of discussion:
Jaitley informed that there were discussions around the calculation of turnover in the case of composition scheme and whether exempted good can be kept out when calculating the turnover. “For example, if a grocery shop sells branded item at 5% GST, but pays zero tax for the goods sold loose, the question now arises if the exempted goods should also be counted to determine turnover,” said Jaitley. In the period VAT regime, such exempted goods were counted for turnover.
Jaitley said another area of discussion was centered around whether taxpayers in the composition scheme should be allowed to carry on inter-state sales. Currently the law does not permit, but Jaitley said there was a discussion on changing the rules. “The last issue was that should input credit be available to those paying 2% tax on manufacturing under composition scheme. These are the issues that need to be looked at in depth. A Group of Ministers is being formed to look into it and they will look at it urgently and in two weeks will submit the report,” said Jaitley.