The Goods and Services tax (GST) council on Friday cut rates on 27 items and 12 services, and approved sweeping changes in rules to soothe frayed nerves of millions of small enterprises and exporters that have been battling with procedural irritants, delayed refunds and technical glitches on returns filing.
The Finance Minister Arun Jaitley-headed panel pushed for big changes in its 22nd meeting to iron out rough edges of the new tax system that has been hit by multiple pain points since it was rolled out on July 1.
The Council relaxed return filing rules for small and medium enterprises (SMEs), deferred the controversial reverse charge mechanism (RCM) till March 31, 2018, and hastened tax refunds for exporters battling cash crunch.
Jaitley said that the annual turnover threshold on the composition scheme has been raised from Rs 75 lakh to Rs 1 crore.
Under the scheme, traders, manufacturers and restaurants can pay tax at 1, 2 and 5 percent, respectively. The move to widen the turnover threshold is aimed at easing the compliance burden for taxpayers as they will have to file returns only once in a quarter as against monthly returns that needs to be filed by other normal taxpayers.
However, dealers cannot avail input tax credit, unlike a normal taxpayer.
“About 15.5 lakh assessees with a turnover of less than Rs 1 crore have opted for the composition scheme,” Jaitley said.
The Council also approved a proposal that allows small tax payers with a turnover of less than Rs 1.5 crore to file quarterly returns, compared to the earlier requirement of filing monthly returns.
“Those with a turnover of Rs 1.5 crore, this will include 90 percent of assessees outside the composition scheme will file quarterly returns in place of monthly returns,” Jaitley said. “Those with an annual turnover of above Rs 1.5 crore will file according to the earlier system”.
The council also offered relief for tens of thousands of exporters, who have been hit by delayed GST tax refunds. A team of officials have been tasked to process exporters’ refund cheques for July from October 10, from October 18, for those for August.
“This is an interim system,” Jaitley said.
A concept note laying down the principle for fixing rates of goods and services has been approved by the Council today.
"As revenue increases, future rates will be tailored accordingly, Jaitley said.
The council also approved a plan to set up an e-wallet that can be used by each exporter. A notional amount will be given as an advance amount in this wallet, which will enable GST credit against which the exporters’ refund will be offset.
“It will be attempted to initiate e-wallet from April 1, 2018. An appropriate technology company will develop this,” Jaitley said.
The council also extended exemption of advance authorisation, export promotion capital goods (EPCG) and export oriented undertakings (EOU) till March 31, 2018. For future exports till March 31, 2018, merchant exporters can export at nominal GST rate at 0.1 percent GST.
This should bring cheer for exporters who have been complaining about locked up tax refunds hurting working capital availability and hurting operations.
The latest decisions are based on recommendations made by a panel headed by Revenue Secretary Hasmukh Adhia.
The decisions came a day after Prime Minister Narendra Modi brainstormed for over three hours with Jaitley and BJP president Amit Shah on Thursday, taking stock of the current state of the Indian economy that is smarting under an untidy goods and services tax (GST) rollout and the lingering effects of demonetisation.
The Reserve Bank of India (RBI), which on Wednesday kept its key lending rate — the repo rate — unchanged at 6 percent, acknowledged that the disruptions from goods and services tax (GST) have worsened the broader economy’s prospects in the short term.
The RBI has placed the onus firmly on the government to engineer a quick turnaround in the economy that was still smarting under an imperfect GST roll out, marred by complaints about technical glitches on the tech backbone and procedural hassles.
A group of ministers (GoM) of state finance ministers have also been set up to look into the composition scheme for inter-state tax related issues, exempted goods and the input tax credit matters related to manufacturers who pay two percent GST under the composition scheme.
The GoM will also look into the proposal to reducing GST rates on air-conditioned restaurants from 18 percent to 12 percent. It will submit its report in a fortnight, Jaitley said.
The Council also defered the RCM, which has been especially bothering the small tax payers.
“To streamline the system, reverse charge mechanism has been deferred till March 31, 2018,”Jaitley said.
Reverse charge is a mechanism where the recipient of the good or service will have to pay GST, which is otherwise paid by the supplier. The charge is applicable on a registered dealer, if he buys goods from a dealer not registered under GST.
However, the receiver of the good is eligible for input tax credit, while the unregistered dealer is not.
Jaitley also said that e-way bill will likely to be made fully applicable from April 1, 2018, as also rules on tax deducted at sources (TDS) and tax collected at source (TCS).
Under GST rules, ferrying goods worth more than Rs 50,000 within or outside a state will require securing an e-way bill by prior online registration of the consignment.
To generate an e-way bill, the supplier and transporter will have to upload details on the GSTN portal, after which a unique e-way bill number (EBN) will be made available to the supplier, the recipient and the transporter on the common portal.
The council also cut GST rates on 27 items. Sliced dried mangoes, khakra, unbranded namkeen, paper waste, job works on imitation jewellery and government contracts, dried chapatti and unbranded Ayurvedic medicine will now be taxed at 5 percent from 12 percent earlier.
Flooring stones excluding marble and granite, many stationery items like clips, diesel engine parts and pumps parts will now be taxed at 28 percent from 18 percent earlier.
The GST rate on e-waste has been cut to 5 percent from 28 percent earlier, while man-made yarn will be taxed at 12 percent from 18 percent earlier. Leasing of old vehicles will be eligible for an abatement of 65 percent.