The implementation of India’s goods and service tax (GST) is in the hands of the GST Council, on which the central and state governments are equally represented. The council has met 22 times before and since GST was rolled out on 1 July, to discuss representations from various groups and make recommendations on tax rates, exemptions and other aspects in relation to GST.
In a public speech before the 22nd GST Council meeting, Prime Minister Narendra Modi, while referring to the mega-changes of demonetization and GST, mentioned that if sectors such as small and medium-sized enterprises (SMEs) and the export sector needed temporary assistance on account of structural reforms, the government would be willing to provide it. He briefly discussed the need for special consideration for these sectors and this formed the basis of the 22nd GST Council meeting.
The meeting focused on issues faced by SMEs and the export sector and on consequent reforms directed towards them. Firstly, these sectors received a breather in terms of compliance requirements. Under the GST regime, every registered person is required to file three GST returns on a monthly basis to be able to benefit from input tax credit. The council recommended that any taxable person having an annual aggregate turnover of less than ₹15 million (US$230,000) be permitted to file GST returns on a quarterly basis.
Secondly, relaxation has been provided for registration in respect of inter-state supplies. Under the GST regime, any taxable person entering into an inter-state supply of goods or services is required to be registered under the GST regime even if its turnover does not exceed the registration exemption limit of ₹2 million. The same exemption threshold has now been extended to suppliers engaging in inter-state supplies as well.
Thirdly, the GST regime had also introduced a “reverse charge mechanism” for supplies made by an unregistered supplier to a registered recipient. This shift of GST liability to the registered recipient was done to ensure that every transaction is taxed. However, this additional liability had the effect of discouraging the procurement of goods and services from unregistered suppliers. With this unwanted result in view, the council recommended suspension of this provision. This decision is expected to result in a considerable boost to the SME industry.
Fourthly, relaxation was provided on advance payments. Under the GST laws, a registered person is required to discharge GST liability on advance payment at the time of receipt of the advance, even if the supply is to be made in the future. The council recommended that any supplier having an aggregate turnover not exceeding ₹15 million will be liable to pay GST when the goods/service are supplied rather than at the time of receipt of advance payment.
Fifthly, the council clarified that a goods transport agency in India will not be required to register to provide transport services. This was clarified for the benefit of SMEs involved in supply of transport services.
Sixthly, thresholds were increased for the composition scheme. Under the GST legislation, persons opting to be taxed under the composition scheme are liable to pay a fixed rate of tax on their turnover irrespective of the actual supply made or returns filed. The scheme is highly beneficial as it involves minimal filing of returns and increases convenience as the businesses do not have to keep account for every supply made and seek input tax credit on it.
Earlier, suppliers in most states could opt for the composition scheme if their aggregate turnover did not exceed ₹7.5 million while suppliers in special states could opt for the scheme if their aggregate turnover did not exceed ₹5 million. The council increased these thresholds to ₹10 million and ₹7.5 million respectively, thus extending the benefit of the composition scheme.
Overall, the GST regime has been welcomed with great enthusiasm by taxpayers and the transition is being called a success. However, as with any other new legal regime, the government has been dealing with a lot of implementation issues. Various industries are constantly making representations to the council and the council has been trying its best to cater to them. A huge quantum of changes in a short period has led to some confusion and chaos among stakeholders. The government has been doing its best to provide explanations for all the changes and is balancing various combinations for optimum GST application as the economy gets accustomed to the new tax law.
L Badri Narayanan is a partner and Asish Philip Abraham is a joint partner at Lakshmikumaran & Sridharan.
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