In a Major Relief to MSMEs, Government Doubles the GST Exemption Limit

The threshold limit below which MSMEs are exempted from GST is doubled to INR 40 lakh

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In the 32nd meeting of GST council, chaired by Finance Minister Arun Jaitley on January 10, some major decisions were taken to reduce the tax and compliance burden on Micro, Small & Medium Enterprises (MSMEs). The step which is specifically expected to bring major relief to small enterprises is of doubling the threshold limit below which companies are exempted from GST to INR 40 lakh.

Arun Jaitley/Twitter

The limit has been extended to INR 40 lakh for most States whereas, for the North Eastern and hill states, the limit has been increased to INR 20 lakh from INR 10 lakh. Addressing the scare of revenue loss, Jaitley assured that since "A very large part of GST revenue comes from the formal sector and large companies," the revenue impact due to these will be minimal."

Considering that there are over 10 lakh taxpayers with turnover below INR 20 lakh, who are paying GST, "The decisions taken by the GST Council have been done to help the small and medium companies," Jaitley affirmed adding that while the eligibility for tax exemption has been increased, the number of taxpayers actually opting for it might not be as high.

Composition Scheme

To ease the compliance burden on small traders, a single annual return with quarterly tax payments has been introduced for the composition schemes. Furthermore, the limit for eligibility for the Composition Scheme would be raised to an annual turnover of INR 1.5 crore, with effect from April 1, 2019. Currently, the companies with an annual turnover of up to INR 1 crore are eligible for the scheme.

In an official statement, the Ministry of Finance noted, "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." Also, Special Category States would decide, within one week, about the Composition Limit in their respective States.

The Composition Scheme allows the taxpayers to file returns on a quarterly basis at a nominal rate of 1 per cent. It was earlier applicable for only manufacturers and traders and has now been extended to small service providers as well as suppliers of Goods and Services with an annual turnover of up to INR 50 lakh, at a tax rate of 6 per cent.

"Increasing the Composition Scheme limit would benefit about 20 lakh small businesses that fall between the annual turnover brackets of INR 1 crore and INR 1.5 crore," said the Confederation of All India Traders in a statement.

Kerala Cess

Owing to recent Kerala floods, the GST council has also decided to allow the state to levy a cess of up to 1 per cent for up to two years on intra-State supplies to help finance the disaster relief efforts.