How GST will affect small businesses
CA Paras Mehra 24 March 2017
“Small business isn’t for the faint of heart. It’s for the brave, the patient and the persistent”
 
Small business will witness a complete transformation of the taxation system once the goods and service tax (GST) (https://www.gst.gov.in/) comes into effect. The proposed system shall be more transparent, more paperless, but requires more compliance as well. On an average there would be additional 36 returns per year to be filed on a single registration. Hence, the small taxable person should be taken care of, to avoid unnecessary burden on him.
 
There is no such term as ‘small taxable person’ under the GST law. We have given the name to the category of persons who had a turnover of less than Rs50 lakh in the preceding financial year. 
In this article, we shall discuss the possible exemptions and remedies available to the small taxable person and also the complexities involved in the procedure.
 
Small Taxable Person
As per the exemption and remedies available, we can categorise the small taxable persons into two divisions;
1. Those having turnover of up to Rs20 lakh (already covered under basic exemption limit)
2. Those with a turnover up to Rs50 lakh (remedy available in the form of composition levy)
 
Person having turnover up to Rs20 lakh
1. The law itself grants the basic exemption of Rs20 lakh to the small taxable person. Every supplier shall not be liable to GST if his aggregate turnover in a financial year does not exceed Rs20 lakh.
2. However, if the supplier is in the states of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand, then the exemption will be available only if the aggregate turnover in a financial year does not exceed Rs20 lakh.
3. Aggregate turnover here means the aggregate value of all taxable supplies, exempt supplies, exports of goods and/or services and inter-state supplies of a person having the same permanent account number (PAN), to be computed on all India basis and excludes taxes, if any, charged under the Central Goods and Services Tax (CGST) Act, State GST (SGST) Act and the Integrated GST (IGST) Act.
 
Let us understand this by way of example:
 
Example No.1: Calculate aggregate turnover and state whether the person is liable for GST exemption
 
 
Aggregate turnover in terms of clause (6) of section 2 is (Rs14+ Rs9 + Rs4) is Rs27 lakh. The turnover is more than Rs20 lakh, hence not liable for GST exemption.
 
Example No.2: Calculate aggregate turnover and state whether person is liable for GST exemption
 
 
No, person shall be not eligible for the basic exemption. 
 
Important question
 
The definition of aggregate turnover only includes taxable supplies, exempt supplies, exports of goods and/or services and inter-State supplies. However, it nowhere mentions non-taxable supplies. Hence, the turnover, as per the definition, will be Rs13 lakh (Rs9 lakh+ Rs4 lakh). Hence, is he eligible for the exemption?
 
The answer is no. The non-taxable supplies shall also be added in the aggregate turnover. This is due to the definition of exempt supply. Exempt supply means supply of any goods and/or services which are not taxable under this Act and includes such supply of goods and/or services which attract nil rate of tax or which may be exempt from tax. 
 
Hence, if we could create a proper link and are able to understand the law, then non-taxable supplies shall also be included.
 
Person having turnover up to Rs50 lakh (Remedy available in the form of composition levy)
 
1. Any registered taxable person can opt for the composition levy if the aggregate turnover in the previous financial year does not exceed Rs50 lakh.
 
2. The officer may permit the registered taxable person to pay tax under composition levy with some conditions.
 
3. The minimum tax payable under composition levy shall be;
- 2.5% of the total revenue, in case of manufacturer;
- 1% in any other case.
 
Let us analyse some of the cases that may be possible under composition levy.
 
Example 1: A person is registered under four states, with the following aggregate turnover in the current year:
 
 
Check the applicability of composition levy.
 
The combined aggregate turnover of all the above states is Rs54 lakh. As per law, the composition levy will be available till the person crosses Rs50 lakh mark. After this, the composition levy will discontinue and normal provision will be applied.
 
The reason behind the availability of composition levy is that Rs54 lakh is the turnover of the current year and not of the previous year. We have assumed that the turnover of previous financial year is less than Rs50 lakh.
 
Example 2: A person is registered under four states, with the following aggregate turnover in the previous financial year:
 
 
Check whether composition levy is applicable.
 
As per the definition of aggregate turnover, we have to check the turnover cumulatively and not state-wise. The total aggregate turnover is Rs144 lakh, which is more than the Rs50 lakh benchmark, and hence the liable person is not eligible for the composition levy.
 
 
Composition levy is not available in certain cases
 
The composition levy is not available under certain cases where the taxable person:
 
- Is engaged in the supply of services; 
 
- Supplies goods on which tax is not leviable under this Act; 
 
- Makes any inter-State outward supplies of goods; 
 
- Supplies goods through an electronic commerce operator and who is required to collect tax at source under section 56; 
 
- Is a manufacturer of such goods as may be notified on the recommendation of the Council.
 
 
This article has very important concepts for the small taxable person, which shall include small general stores at well. Hence, it should be understood clearly, because even a small mistake can lead to severe penalties. 
 
GST is the biggest reform to date. Hence people should be prepared nationwide to accept this change.
 
(CA Paras Mehra is an expert in taxation, including GST, and is also professionally associated with Hubco.in, a website to register and file GST in India.)
 
Comments
Kuldeep Yadav
5 years ago
Thanks for sharing useful information and for more information http://www.rbgconsultant.com/gst-services/gst-e-commerce
Annu webphantoms
5 years ago
Thanks for sharing useful information.
Shiv Shankar Singh
5 years ago
Hello sir,
i'm the owner of a small IT Pvt limited company. i'm not doing any work with this company. The Total turn over of this cmp is ZERO. so my question is, still i needed to file or register GST or NOT?
Rajeev Gupta
5 years ago
Sir, supplier who not rgt. in gst bcz his turnover below than 20 lacs. Are not supplie ln govt.department ? Officer tell him that...we are not purchased any items to bcz you're not registered in gst..plz explain what can I do..thanks
Bimalendu Chakraborty
5 years ago
A very small retail medicine shop.turnover 1200000.need gst no.wholesalerdo not supply medicine my shop without gst no.what can I do?
Sunil Sehgal
5 years ago
Sir, supplier who not rgt. in gst bcz his turnover below than 20 lacs. Are not supplie ln govt.department ? Officer tell him that...we are not purchased any items to bcz you're not registered in gst..plz explain with gst section..thanks.....sunil.
Ten Rabten
5 years ago
As for retailer having business less than 20 lakh as turnover. But goods for sales are from other state.. so how do we get the goods .. with or without gst tax on it... how to define a govt that our retail business turnover is less than 20 lakh... do we still need to register for gst ?
janak ramanlal Shah
5 years ago
I am retailer having transaction below Rs 20 lakhs.How can I get goods from suppliers ?Pl show me the format of Bill that I have to give to my customers
joseph Antony
5 years ago
Can I do my trading or manufacturing and sales of steel furniture below the turnover 20 lakhs with my migrated gst registration as a registered business?
ajit babalad
5 years ago
What effect does gst have on business of turnover less than 20 lakhs? What is that basic exemption? pls help me to known
joseph Antony
5 years ago
If an existing trader or a manufacturer already migrated to gst registration below turnover 20 lakhs per year...How gets tax exemption? What he should to do for the exemption from tax as a registered business?
Abhishek kapri
5 years ago
Actually i want to know that how a manufacturer (without registered company) is affected by GST bill ?
like:1) He has to register a company name?
2) Those non-taxable goods comes in picture?
How he will able to manage his competitor?
Please answer asap.
Thank you
Mr Jitendra
5 years ago
In last 15-20 days, the most people cribbing about GST is the small retail shops and restaurants in villages. They say how are we suppose to file 3 to 4 GST returns per month on a fixed date? Where is the infrastructure? Most villages in April, May, June lack electricity for 5 to 7 hours every day. How are they suppose to keep computerised sale statements and receipts? The very supporters of the 2014 government are now gone against it. Most small shops and retailers dont want GST to come to them as they are not educated on it nor they want the education. Some are saying, Govt must do the infrastructure setup of each restaurant and shop.
Sabarish T S
5 years ago
Nice article. I have 2 questions can someone please explain Question 1: If aggregate turnover is less than 20 lakhs should we still go to GST portal and declare something. If yes what needs to be declared and what documents are needed? Question 2: If the aggregate turnover exceeds 20 lakhs and say this becomes 22 lakhs. Then should we pay GST on (22- 20)=2 lakhs OR on the entire 22 lakhs?
S M
Replied to Sabarish T S comment 5 years ago
YES THE WHOLE 22 LAKHS SHOULD BE PAID GST
S M
Replied to S M comment 5 years ago
CONSULT YOUR CHARTERED ACCOUNTANT FOR FURTHER ENQUIRY
priya arumugam
5 years ago
What effect does gst have on business of turnover less than 20 lakhs? What is that basic exemption?
S M
Replied to priya arumugam comment 5 years ago
BELOW 20 LAKHS THERE IS GST EXEMPTION
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