The Goods and Services Tax (GST) council, at its 32nd meeting held last week, announced several changes including the fact that the new limit for registration under GST would be Rs40 lakh. This has been hailed as a major decision to help small taxpayers go out of the tax net and, hence, the related compliances and costs. However, this limit has come with far too many complications, as explained below, and a small businessman will have to take help of a tax expert before deciding whether to avail this exemption limit or continue to be in GST regime. The main issues, which will have to be kept in mind, are:
1. Next Year: This limit is applicable from FY19-20 onward, i.e., for financial year starting from 1 April 2019.
2. Goods, Not Services: The limit is applicable only for sale of goods. For service providers limit continues to be Rs20 lakh for all states except for special states where it is Rs10 lakh.
3. Not for Interstate Sales: The limit is not applicable if you are selling goods inter-state, i.e., from one state to another.
4. Amendments: GST being a dual tax (Central and state), the limit for turnover will have to be changed in both the Acts. This will have to be done for each state in Central Goods and Services Act, 2017 as well.
5. Registration: Section 24 of GST Act makes it compulsory to register in certain circumstances, and this Section is not amended. Hence, if a small businessman is registered due to that, he will have to continue with the registration. Exporters and those selling on websites like Flipkart, Amazon, Snapdeal will have to continue with their registration.
6. No Clarity on Service Income: If a person, who is selling goods, has even small service income like rent for neon signs or product placements at his shop, it is not clear whether the limit of Rs20 lakh or Rs40 lakh will apply to him. For example, a person may have sales of Rs25 lakh and rental income of Rs5 lakh, will he be covered by the new exemption limit? Since increase in limit is for goods only and there no separate limit for goods and services for aggregate turnover, once registered, GST has to be charged on all outward supplies whether goods or service.
7. Turnover Calculation: Section 22 of GST Act uses the word aggregate turnover (taxable goods plus taxable services plus exempt/nil rated goods plus exempt/nil rated services) while describing persons who are liable for registration. Hence, small shop-owners will have to see their turnover in totality before deciding. Even for as basic an issue as the limit for registration , what was the need to have so much complications.
8. GST Paid Becomes Cost: All GST paid on purchases will become cost to the person and he cannot charge any GST on outward supplies, i.e., sales.
9. Draconian Consequences: On top of all this, please remember Section 17(5)(i), which says that if you decide that tax is not payable but GST department asks for tax and you lose in appeal, you may not be eligible for input tax credit on purchases.
GST was supposed to remove distinction between goods and services or mixed supply of goods and services, since, under the erstwhile regime, many disputes were relating to this. Now we are slowly again going towards that as there will be separate limit for registration and we already have separate procedure for refund in case of export of goods and service. Also, for composition scheme, there will be separate limit of Rs50 lakh for services and Rs150 lakh for goods with different rates.
(Nikhil Vadia is a chartered accountant practicing since past more than 21 years in direct and indirect taxation, internal audit and management consultancy)