Small business will witness a complete transformation of the taxation system once the goods and service tax (GST) 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;
- Those having turnover of up to Rs20 lakh (already covered under basic exemption limit)
- Those with a turnover up to Rs50 lakh (remedy available in the form of composition levy)
Person having turnover up to Rs20 lakh
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.
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.
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
| Value of Supplies Made | |
| Name of Supplies | Amount |
|---|---|
| Value of Exports | Rs 14 lakh |
| Value of Exempted Good Supplies | Rs 9 lakh |
| Value of Services Provided | Rs 4 lakh |
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)
- Any registered taxable person can opt for the composition levy if the aggregate turnover in the previous financial year does not exceed Rs50 lakh.
- The officer may permit the registered taxable person to pay tax under composition levy with some conditions.
- 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:
| State | Aggregate Turnover |
|---|---|
| Delhi | Rs 12 lakh |
| Maharashtra | Rs 10 lakh |
| Rajasthan | Rs 18 lakh |
| Haryana | Rs 14 lakh |
The combined aggregate turnover of all the above states is Rs 54 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:
| State | Aggregate Turnover |
|---|---|
| Delhi | Rs 52 lakh |
| Maharashtra | Rs 30 lakh |
| Rajasthan | Rs 48 lakh |
| Haryana | Rs 14 lakh |
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.
(Opinion piece by CA Paras Mehra – an expert in taxation, including GST, and is also professionally associated with Hubco.in, a website to register and file GST in India)