How New Income Tax Exemption Limit For GST Will Benefit SMEs?
While a large section of the economy is still trying to decipher the various provisions of the Goods and Services Tax (GST), the GST Council made a significant announcement in January to provide relief to small and mid-sized enterprises (SMEs), which employ around 40% of the Indian workforce producing more than 6000 products. It is very important to understand gst meaning and all other basics of Goods and services tax to know income tax exemption limit and other benefits in India.
The GST Council raised the minimum threshold for Goods & services tax registration from the earlier Rs. 20 lakh to Rs. 40 lakh for other states, while for north eastern and hilly states it has been raised from Rs. 10 lakh to Rs. 20 lakh. The Council also raised the minimum threshold for availing the composition scheme from the earlier Rs. 1 crore to Rs. 1.5 crore. This article analyses how these new exemption limits will boost SMEs, the growth drivers of the Indian economy.
Reduction in Cost of Compliance for SMEs
While uniformity in taxation is one of the major GST benefits, SMEs often find it difficult to cope up with the cost of compliance. The new exemption limit will bring down this cost for SMEs whose aggregate turnover is equal to or below the minimum threshold. In other words, now, SMEs in other Indian states whose aggregate turnover is up to Rs. 40 lakh need not GST registration procedure of their business in India.
Similarly, businesses in north eastern and hilly states whose aggregate turnover is equal to or below Rs. 20 lakh aren’t required to pay any tax. Thus, the new exemption limit will not only keep them out of GST ambit but also ease compliance.
In an interview Ajay Bhushan Pandey, Chairman of the Goods and Services Tax Network (GSTN), said that the decision to raise the threshold for SMEs was taken after observing that cost of compliance for SMEs with an aggregate turnover of Rs. 20 lakh often exceeded the actual tax they pay. So, keeping in mind this difficulty for SMEs, the GST Council raised the minimum threshold. With SMEs saving on the cost of compliance, the same can boost their working capital in the long run.
More Businesses can avail GST Benefits under Composition Scheme
The decision of the GST Council to raise the minimum threshold for registering under the composition scheme from the earlier Rs. 1 crore to Rs. 1.5 crore would mean more small businesses can avail its benefits. Earlier, if the aggregate turnover increased even by a rupee, businesses couldn’t avail the composition scheme.
Businesses registered under the composition scheme need to furnish quarterly returns, unlike regular taxpayers who need to file returns on a monthly basis. This also relieves the taxpayer from record keeping, thus, allowing him/her to focus more on business rather than being occupied with compliance procedures.
Also, those enrolled under the composition scheme get a concessional about GST rate of 1% as against regular taxpayers. However, the biggest benefit of registering under a composition scheme is the non-blockage of working capital. A normal taxpayer can avail the benefits of input tax credit only when the supplier files return online. This is not the case with taxpayers registered under the composition scheme.
The Final Word
With Goods and Services Tax still in the stabilisation process, the new tax exemption limit will help SMEs focus on their areas of business, rather than worrying about GST compliance. It will also reduce the burden of paperwork and record keeping, something which they find difficult to maintain in the long run. Also, it will help them overcome woes related to cash flow, hampering operations.
With the above provisions being applicable from 1st April 2019, the desired impact will be visible in the next few months, probably during the second or third quarter of the fiscal.
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