The GST Council today hiked the threshold limit of the composition scheme that allows small businesses to pay taxes at a lower rate without getting any input tax credits.
Businesses with an annual turnover up to Rs 1 crore can now opt for the scheme, Finance Minister Arun Jaitley told reporters. The earlier threshold limit was Rs 75 lakh. About 15.5 lakh companies with a turnover of less than Rs 1 crore have joined, he said.
The increase in threshold would bring in many more small businesses within its ambit and decrease the compliance burden for various businesses that were previously hit by the lower threshold, said Rashmi Deshpande, associate partner at Khaitan & Co. However, to make the scheme really effective it needs to be liberalised by including all service providers and allowing them to provide inter-state supplies, PwC said in a statement.
The attractiveness of this scheme will come down to whether a big manufacturer is willing to buy from a dealer without getting any credit, said Badri Narayan, lawyer and partner with law firm Lakshmikumaran & Sridharan told BloombergQuint.
One of the problem they still face is that the composition scheme is not working as well as it is supposed to. Partly because businesses want input credit on all of the inputs they’re making. The minute you’re on a composition scheme you do not get any input credit at all. This is one of the reason why many people have not gone into the composition scheme. It looks attractive on paper.Badri Narayan, Partner, Lakshmikumaran & Sridharan
Under the scheme, traders, manufacturers and restaurant owners have to pay a GST rate of 1 percent, 2 percent and 5 percent of their turnover, respectively. Those who opt for this can file returns quarterly, compared to every month earlier.
The GST Council also allowed other taxpayers with a turnover of up to Rs 1.5 crore to file quarterly returns. A Group of Ministers headed by Bihar Finance Minister Sushil Modi will examine and submit recommendations in two weeks.
The GoM will look into:
- Inter-state supply of goods for those who avail the Composition Scheme.
- Sale of exempted goods by traders availing the Composition Scheme.
- Whether input tax credit can be availed if tax is paid at 2 percent.
Read all the highlights of the GST Council’s decisions here.
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