GST exemption limit for MSMEs and small businesses instead of Rs2 million set earlier

new delhi — In a major relief for MSMEs and small businesses, the GST Council on Thursday doubled the exemption threshold from Rs2 million to Rs4 million and raised the limit for availing the composition scheme to Rs15 million from the present level of Rs10 million.

It also allowed Kerala to impose a natural disaster cess of up to 1 per cent for a period of up to two years in view of the devastation the state faced due to massive floods in August last year.

Till now, businesses, most of them micro, small and medium enterprises (MSMEs), with a turnover up to Rs2 million were exempt from paying Goods and Services Tax (GST). The revised limits will be applicable from April 1.

Announcing the decisions after the GST Council meeting here, Finance Minister Arun Jaitley also ruled out any further cuts in tax rates and said “reductions will be made only when revenues move up”.

He said while under the original GST structure, it was envisaged for those with a turnover of up to Rs2 million to get exemption, the threshold for some north eastern and hill states was kept at Rs 10 lakh.

“We have decided to continue with the twin structure with two slabs. While the Rs2 million threshold has been doubled to Rs4 million, for smaller states, the exemption has been kept at Rs2 million,” Jaitley said.

Even before the decision, some states, including Jammu and Kashmir and Assam, had amended their laws to increase the Rs1 million threshold to Rs2 million.

Jaitley said the states with the new limit of Rs2 million will have the option to “opt up”. He added that states with Rs4 million limit will also have the option to “opt down” over concerns of erosion of assesse base if they intimate within one week.

He said while the decision would make over 20 lakh businesses eligible for exemption, all of them may not avail it in order to continue to enjoy benefits of GST like input tax credit.

The Council also considered a report of the Group of Ministers on imposing a cess in case of calamities and natural disasters. The GoM was set up after a demand for a cess was raised by Kerala after it was hit with severe floods in August last year.

“Kerala is now entitled to impose maximum cess of 1 per cent on intra-state sales for a maximum period of two years,” Jaitley announced adding that the GST Council can allow some states to levy cess in case of natural disasters.

While announcing that the threshold limit of Rs15 million for eligibility under the GST Composition Scheme will come into force from April 1, the Minister said the GST Council also decided that those opting for the scheme would need to file their returns only once a year.

“Those who avail the composition scheme will have to pay quarterly tax but will have to file return only once every year. This will reduce compliance burden,” he said.

Those opting for the Composition Scheme pay a minimal Goods and Services Tax (GST) of 1 per cent. —