GST Limit Exemption MSMEs: Your Business May Not Have to Pay GST

If you have a business, you might want to read this. The GST council made a decision in their most recent meeting to double the current GST limit for MSMEs to ₹ 40 lakhs from the previous ₹20 lakhs. The composition scheme too has now been increased to 1.5 Cr from 1 Cr.

The prime goal of this decision was to simplify the cost of compliance for micro, small and medium enterprises (MSMEs) in India.

Who does this GST limit extension affect?

According to the latest changes in the law, any business that generates less than ₹40 Lakhs as revenue no longer needs to pay GST or register. Taking all states into consideration, the exemption limit for North Eastern and hilly states are doubled to INR 20 Lakh.

All states get a week to decide one of the limits, as told by the finance ministry. However, service providers continue to have a limit of  ₹20 Lakhs.

  • If your business is generating an annual revenue of less than ₹40 Lakhs, you won’t have to pay GST.
  • If you have opted for the composition scheme, your exemption limit is extended to ₹1.5 CR.
  • If you are a service provider or a supplier of goods and services with a turnover of ₹50 lakh, you now have the option to opt for the composition scheme. This was not allowed in the previous regime.

You may also like to read: Input Tax Credit Fraud – Why You Need GST-compliant Invoices

Understanding composition scheme for service providers

The composition scheme earlier allowed businesses with an annual turnover or ₹1 Cr (and ₹75 Lakhs for some states) to voluntarily opt into a scheme where they pay a special rate of 1% (for manufacturers and other suppliers), and 5% (for food suppliers).

A special provision has been made for service providers in the latest regime. The annual threshold limit under the composition scheme for small service suppliers is now at INR 1.5 Cr. This scheme is now also available for service providers and suppliers with an annual turnover of up to ₹50 lakh with a rate of 6%.

This scheme was earlier available only for restaurants, but experts have suggested that it will now benefit all kinds of small service providers, like beauty parlors, confectionaries, and hotels.

The pressure on companies to comply with tax regulations significantly reduces, with the onset of this decision. The increase in the threshold and reduction in return filing requirements to just one per year is a load off MSMEs.

What effect could it have on an MSME like yours?

Over 20 Lakh business taxpayers will benefit from this new exemption extension.

“While we need to provide relief to small taxpayers, it is equally important to expand the tax base,” said Pratik Jain, Partner at PwC. If the states are prompt with a response, there may be multiple threshold limits set across the country for MSMEs, and hopefully, it will prove beneficial for both parties.

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