GST Council May Exempt Small Firms From CGST

The GST Council, in its 29th GST meeting on Saturday, is likely to discuss the proposal to remove the CGST (central goods and services tax) levy on small businesses with annual turnover of up to Rs 1.5 crore. If the proposal is cleared by the Council, small businesses will no longer have to pay central GST on their sales or can claim a refund of the CGST paid. The government is already discussing the issue with state governments, said a source.

Under the previous tax regime, businesses with annual revenue of up to Rs 1.5 crore were not required to pay any central tax (excise duty), however, the current GST law needs such businesses to pay a central tax (CGST) on all interstate transactions, irrespective of the sale value.

After the new proposal is implemented, small businesses will be exempted from CGST, however, they will still be required to pay the state GST (SGST), same as before, and will continue to have to remain registered under GST.

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These small firms are the backbone of India’s rural economy and provide jobs to millions of citizens. The implementation of the GST system and demonetization before that had created a liquidity problem causing significant business disruption for these entities. The government is hopeful that the recent tax cut on some consumer items, along with the proposed tax relief, will contribute to the growth of these businesses.

“An exemption of CGST will require a change in the law, but if the relief is given through a refund mechanism, it could be done through a scheme with a change in rules that do not require Parliament’s approval,” said a source in the government.

However, experts believe that the step to exempt or refund Central GST while retaining State GST might create technical issues. “This could pose operational difficulty and its benefits need to be examined in depth before taking a decision,” said Bipin Sapra, a partner at EY Consulting.

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A positive aspect of the proposal is that the removal of CGST will be seen as retaining the original GST promise of levying an equal tax on goods and services by both the Center and States.