Easing GST pain for SMEs: More rate cuts, hike in composition scheme cut-off likely on 10 Nov

The ministerial panel working to make Goods and Services Tax (GST) composition scheme more attractive today suggested slashing tax rate to 1 percent for manufacturers and restaurants, while making norms for traders opting for the scheme easier.

Currently, manufacturers and restaurants with turnover up to Rs 1 crore pay GST under composition scheme at 2 percent and 5 percent respectively. The same for traders is 1 percent.

The Group of Ministers (GoM), headed by Assam Finance Minister Himanta Biswa Sarma, on Sunday held its second meeting.

The GoM has also suggested doing away with the tax rate distinction between AC and non-AC restaurants, those which are not covered under composition scheme, and tax them at 12 percent with input credit.

It also suggested that eating out at hotels, which has room tariff of more than Rs 7,500, should attract an uniform 18 percent tax rate instead of any separate category for 5- star hotel.

The GST Council, chaired by Union Finance Minister Arun Jaitley and comprising his state counterparts, on 10 November in Guwahati is likely to take up the recommendations of the GoM, which was set up earlier this month.

According to a report in the Indian Express, the panel has also suggested an increase 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 has been quoted as saying in the IE report.

With regard to traders, the GoM suggested two pronged approach for taxation under the composition scheme.

It suggested that traders who want to exclude the sale proceeds of tax-free items from its turnover, it can pay 1 per cent GST (Goods and Services Tax). However, those traders who pay tax on total turnover, the tax rate has been proposed at 0.5 percent.

For example, supposing a trader deals in goods which are tax exempt as well as those which are taxable under the GST and has a turnover of Rs 1 crore. Of this, Rs 40 lakh turnover is from sale of tax-exempt items and remaining Rs 60 lakh from taxable goods.

So, traders deciding to pay tax on total Rs 1 crore turnover can pay 0.5 percent, while those wanting to pay tax on Rs 60 lakh can cough up 1 percent GST.

“The GoM decided that tax rates under composition scheme for restaurants and manufacturers be lowered to 1 percent. For traders the ministerial group suggested two tax rates,” an official told PTI.

The GoM also recommended allowing businesses who are engaged in inter-state sale to avail the composition scheme, he added.

Around 15 lakh businesses opted for composition scheme, which allows them to pay taxes at a concessional rate and makes compliance easy under the Goods and Services Tax (GST) which rolled out from July 1. There are over 1 crore businesses registered under GST.

Composition scheme is open for manufacturers, restaurants and traders whose turnover does not exceed Rs 1 crore. This threshold was earlier Rs 75 lakh and the GST Council earlier this month raised it to Rs 1 crore from 1 October.

While a regular taxpayer has to pay taxes on a monthly basis, a composition supplier is required to file only one return and pay taxes on a quarterly basis.

Also, a composition taxpayer is not required to keep detailed records that a normal taxpayer is supposed to maintain.

The GoM was tasked with revisiting the tax structure of different categories of restaurants with the aim of rationalising or reducing the rates, apart from making composition scheme more attractive for businesses.

Currently, GST is levied at 12 percent on non-AC restaurants, while it is 18 percent for air-conditioned ones.

The other members of the GoM are Bihar Deputy Chief Minister Sushil Modi, Jammu and Kashmir Finance Minister Haseeb Drabu, Punjab Finance Minister Manpreet Singh Badal and Chhattisgarh Minister of Commercial Taxes Amar Agrawal.

The GoM has also suggested that manufacturers engaged in job works can be allowed to opt for composition scheme, the official added.