Understanding the various clauses and provisions of the Goods and Services Tax (GST) has been challenging for businesses for quite some time now. While the complex structure is one of the major disadvantages of GST, the relief it has given enterprises from the cascading tax effects, which existed in the pre-GST era, is to be appreciated.

Ever since its introduction in July 2017, the GST Council has made several changes and some essential modifications were announced in the 32^nd meet of the Council in January 2019. Experts feel that while these changes can complicate the tax system, it will boost small and mid-sized enterprises (SMEs). Read on to know more.

Background

During its 32^nd meet, the GST Council announced doubling of the threshold limit for businesses for GST registration. While for the North Eastern and hilly states it was raised from Rs. 10 lakh to Rs. 20 lakh, for others it was doubled from Rs. 20 lakh to Rs. 40 lakh. The threshold of for enrolling under the composition scheme was also increased from Rs. 1 crore to Rs. 1.5 crore.

Why it would complicate matters?

Experts feel that the move would complicate matters because it’s the choice of the respective states as to whether they want to raise the threshold limit for GST registration or not. While some states such as Jammu and Kashmir and Assam have decided to do it as proposed by the GST Council, Kerala has chosen to keep it same.

It must be noted that one of the major highlighted GST benefits was the uniformity it would bring in the indirect tax regime, making compliance easier. However, different threshold limit for different states overrules the premise of uniformity. Also, the policies are applicable only for the supply of goods and not services, taxation process for the latter could lead to more complexity in the future.

Also, the purpose of GST in India was also to eliminate the distinction between goods and services in terms of taxation. However, these measures are re-establishing the earlier tax structure instead of changing it, fear analysts.

Bonanza for SMEs

While the changes can complicate the tax system, the announced measures are a bonanza for small and mid-sized enterprises (SMEs) in the country. If the state where the SME is operating opts for doubling of the GST threshold, the same will ensure that entities with an annual turnover less than the specified limit need not register for GST.

In other words, they will not have to pay any taxes. For long, the general feeling among SMEs was to increase the threshold limit for GST registration. The announcement of raising the threshold limit under the composition scheme is also a major positive.

While earlier only businesses with an annual turnover of up to Rs. 1 crore were eligible for enrolling under the scheme, the additional Rs. 50,000 gives them a little more breathing space.

It must be noted that those under this scheme get a concessional GST rate of 1% as against regular taxpayers with the flexibility to pay taxes quarterly and not monthly. It’s expected that the increased threshold under the scheme would help more SMEs to enrol under this scheme and avail its benefits. The proposed changes will be applicable from 1^st April 2019.