Latest GST relief to benefit startups and small and medium businesses

The gory tale of ‘100 days under GST regime’ seemed to cross a happy turning on Friday (Oct 6) at the meeting of the Goods and Services Tax (GST) Council. Facing severe criticism over the implementation of GST, the government has been bringing about piecemeal reliefs. The latest one in the series being the abolition of the bond requirement in case of exports.

Continuing along these lines, it came up with a series of reforms mainly directed towards the startups, small businesses, and exporters.

Some of the major recommendations that have been made by the GST council at its 22^nd meeting include:

1. Service providers making interstate supply are exempted up to Rs 20 lakhs from registration under GST – relief to exporters

Anyone making inter-state taxable supplies, except inter-state job worker, is compulsorily required to register, irrespective of turnover. The biggest brunt of this was felt by the export sector. Exports have been categorised aszero-rateded” and hence 0% GST was applicable to it. However, since exports were essentially “inter-state sales”, hence registration was mandatory.

It has now been decided to exempt those service providers whose annual aggregate turnover is less than Rs 20 lakhs (Rs 10 lakhs in special category states except J & K) from obtaining registration even if they are making inter-state taxable supplies of services. This measure is expected to significantly reduce the compliance cost of small service providers.

This perhaps is the biggest announcement that has been made. This is because this move will directly impact exporters in a huge way. Now lakhs of small exporters do not need to register themselves upto Rs 20 lakhs of export since export was characterised as an inter-state sale, wherein the registration was mandatory. This has been waived off.

   2. Ease in return filing and payments for startups 

To facilitate the ease of payment and return filing for small and medium businesses with annual aggregate turnover up to Rs 1.5 crores, it has been decided that such taxpayers shall be required to file quarterly returns in FORM GSTR-1,2 & 3 and pay taxes only on a quarterly basis, starting from the third quarter of this financial year that is October-December 2017.

The registered buyers from such small taxpayers would be eligible to avail ITC monthly. The due dates for filing the quarterly returns for such taxpayers will be announced in due course. Meanwhile, all taxpayers will be required to file FORM GSTR-3B monthly until December 2017.

All taxpayers are also required to file FORM GSTR-1, 2 & 3 for the months of July, August and September 2017. Due dates for filing the returns for the month of July 2017 have already been announced. The due dates for the months of August and September 2017 will be announced in due course.

Our view – This is an excellent measure; however, we are of the view that this quarterly filing of returns should be the norm for all the taxpayers, and monthly or quarterly tax payments should have been based on the size of the business.

There is also a lack of clarity with respect to the filing of GSTR 3B for the quarter months (Oct-Dec 2017) for small size businesses, as now they have to do quarterly filing from Oct 2017 quarter.

1. Reverse charge on inward supply from un-registered taxpayers suspended

The reverse charge mechanism under Sub-section (4) of Section 9 of the CGST Act, 2017, and under Sub-section (4) of Section 5 of the IGST Act, 2017, will be suspended till March 31, 2018, and will be reviewed by a committee of experts. This will benefit small businesses and substantially reduce compliance costs.

Our view – In the first instance, there was no need for this provision, and this should be completely abolished. Please note this covers only in case of registered tax payers taking inward supply of services or goods from un-registered taxpayers. Reverse charge under section 9(3) in cases of specified transactions still exists.

1. Composition scheme threshold hiked

The composition scheme will be made available to taxpayers having an annual aggregate turnover of up to Rs 1 crore as compared to the current turnover threshold of Rs 75 lacs. This threshold of turnover for special category states, except Jammu & Kashmir and Uttarakhand, will be increased to Rs 75 lakhs from Rs 50 lakhs. The turnover threshold for Jammu & Kashmir and Uttarakhand will be Rs 1 crore.

The facility of availing composition under the increased threshold will be available to both migrated and new taxpayers up to March 31, 2018. The option once exercised will become operational from the first day of the month immediately succeeding the month in which the option to avail the composition scheme is exercised.

New entrants to this scheme will have to file the return in FORM GSTR-4 only for that portion of the quarter from when the scheme becomes operational and will file returns as a normal taxpayer for the preceding tax period.

The increase in the turnover threshold will make it possible for a greater number of taxpayers to avail the benefit of easier compliance under the composition scheme and is expected to greatly benefit the MSME sector.

Persons who are otherwise eligible for composition scheme but are providing any exempt service (such as extending deposits to banks for which interest is being received) were being considered ineligible for the said scheme. It has been decided that such persons who are otherwise eligible for availing the composition scheme and are providing any exempt service, will be eligible for the composition scheme.

Our view – This is a good measure, in addition, the restriction of no interstate sale by a composition dealer should also be removed off.

1. GST to be paid on advances received from customers relaxed for startups and small businesses

The requirement to pay GST on advances received is also proving to be burdensome for small dealers and manufacturers. To mitigate their inconvenience on this account, it has been decided that taxpayers having annual aggregate turnover up to Rs 1.5 crores will not be required to pay GST at the time of receipt of advances on account of supply of goods. The GST on such supplies will be payable only when the supply of goods is made.

Our view – This is a welcome move, and we hope that this becomes the norm for all the taxpayers. There is no need to pay GST till the sale happens, otherwise, it creates unnecessary complications.

Other facilitation measures

• After assessing the readiness of the trade, industry and government departments, it has been decided that registration and operationalisation of TDS/TCS provisions will be postponed until March 31, 2018.
• The e-way bill system will be introduced in a staggered manner with effect from January 1, 2018, and will be rolled out nationwide with effect from April 1, 2018. This is in order to give trade and industry more time to acclimatise itself with the GST regime.
• The last date for filing the return in FORM GSTR-4 by a taxpayer under composition scheme for the quarter July-September 2017 will be extended to November 15, 2017. Also, the last date for filing the return in FORM GSTR-6 by an input service distributor for the months of July, August and September 2017 will be extended to November 15, 2017.
• Invoice rules are being modified to provide relief to certain classes of registered persons.

The above reforms are expected to eradicate the initial hiccups in the GST implementation. As of now, the startup sector has been hard hit by GST. These moves would also not adversely impact government revenue because the share of these small businesses is far less compared to medium-sized and big firms.

As per latest data, 40 percent business entities make zero GST payment. There is still scope for further improvement. For example, a reverse charge on transactions with unregistered dealers can be abolished completely, GST returns can be made quarterly for all businesses uniformly. Once these measures are implemented, the final objective of uniform taxation – one tax one nation can be finally achieved.

(Taxmantra have launched a single platform on GST compliances in India. Click this link for any assistance.)