GST Council Doubles Exemption Threshold, Kerala Allowed Calamity Cess

New Delhi: In a major relief for medium, small and micro enterprises (MSMEs) and small businesses, the GST Council on Thursday doubled the exemption threshold from Rs 20 lakh to Rs 40 lakh and raised the limit for availing the composition scheme to Rs 1.5 crore from the present level of Rs 1 crore.

It also allowed Kerala to impose a natural disaster cess of up to 1% 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 MSMEs, with a turnover up to Rs 20 lakh 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 Rs 20 lakh 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 Rs 20 lakh threshold has been doubled to Rs 40 lakh, for smaller states, the exemption has been kept at Rs 20 lakh," Jaitley said.

Even before the decision, some states, including Jammu and Kashmir and Assam, had amended their laws to increase the Rs 10 lakh threshold to Rs 20 lakh.

Jaitley said the states with the new limit of Rs 20 lakh will have the option to "opt up". He added that states with Rs 40 lakh limit will also have the option to "opt down" over concerns of erosion of assessee 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% 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 Rs 1.5 crore 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%.

The Council also made small service providers, and those providing a mix of goods and services, with a turnover of up to Rs 50 lakh, eligible for the composition scheme. They will, however, have to pay GST at 6 per cent. This will also be applicable from April 1.

"Because in services, there are no comparable inputs as in manufacturing and trade, composition rate has been put as 6 per cent. So those who render services, or a mix of goods and services, and have a turnover up to Rs 50 lakh would be entitled to composition scheme on payment of 6 per cent," Jaitley said.

He said the rate was lower than the average GST or Service Tax rate being paid by them.

The GST Council also decided to set up a seven-member GoM on real estate and another on lotteries and issues related to them.

Jaitley said there were diverse opinions on the issues and since all decisions in the Council are taken through consensus, it was decided to delve deeper into the issues.

He said while there was no deadline for the two GoMs, whose members would be announced, they were expected to submit their reports before the next Council meeting.