GST provisions you would like to know about Small Tax Payers

Article explains What are Micro, Small & Medium Enterprises , Is GST mandatory for Registered MSME, Section 22 of CGST Act Person liable for Registration How MSMEs comply with GST, Benefits of GST to MSME , Major Steps by GST Council to give relief to MSME, What is Composition Levy (Sec.10) , Eligibility category for opting for Composition levy, Specified rate of Composition levy under GST, Persons not eligible for Composition Scheme under GST , Payment of GST Tax & GST Return Filling , How to revise GSTR-4, Late Fees and Penalty, Input Tax Credit (ITC) under GST, Invoice under GST, Maintenance of Accounts , Reverse Charge Mechanism (RCM) and Penal Consequences.

1. What are Micro, Small & Medium Enterprises ?

Definitions of Micro, Small & Medium Enterprises : In accordance with the provision of Micro, Small & Medium Enterprises Development (MSMED) Act, 2006 the Micro, Small and Medium Enterprises (MSME) are classified in two Classes:

i. Manufacturing Enterprises-the enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the industries (Development and regulation Act, 1951) or employing plant and machinery in the process of value addition to the final product having a distinct name or character or use. The Manufacturing Enterprise are defined in terms of investment in Plant & Machinery.

ii. Service Enterprises:-The enterprises engaged in providing or rendering of services and are defined in terms of investment in equipment.

The limit for investment in plant and machinery / equipment for manufacturing / service enterprises, as notified, vide S.O.  1642(E) dtd.29-09-2006 are as under :

Manufacturing Sector
Enterprises	Investment in plant & machinery
Micro Enterprises	Does not exceed twenty five lakh rupees
Small Enterprises	More than twenty five lakh rupees but does not exceed five crore rupees
Small Enterprises	More than five crore rupees but does not exceed ten crore rupees
Service Sector
Enterprises	Investment in equipments
Micro Enterprises	Does not exceed ten lakh rupees:
Small Enterprises	More than ten lakh rupees but does not exceed two crore rupees
Medium Enterprises	More than two crore rupees but does not exceed five crore rupees

2. Is GST mandatory for Registered MSME?

GST (Goods and Service Tax) is a composite tax which subsumes all major taxes of economy. With launch of GST, each entrepreneur whether big or small has to deal with GST taking in all major and minor business transactions. To specify applicability of GST to certain business units,  overnment has provided criteria to decide whether a business unit has to get registered under GST or not. While the GST system provides simplicity in accounting, it also creates ambiguity for those who are new to such type of transaction basics.

To understand requirement of GST for MSME, we must first understand who should register for GST as per law. As per GST law, following conditions need to be fulfilled for transacting with GST :

• For businesses getting an annual turnover of over more than Rs 20 lakh in a financial year ( Rs 10 lakh for North eastern and hill states)[Refer below Sec.22 of CGST Act]
• For businesses engaged in Interstate supply, Input services, ecommerce operations, agencies dealing with suppliers.
• Person supplying online information and database access or retrieval services from a
  place outside India to a person in India, other than a registered taxable person.
• For entities which are earlier registered for other tax liabilities like Excise duty, Service tax etc. have also to get registered under GST.
• For business units counted under definition of reverse charge mechanism.

3. Section 22 of CGST Act: Person liable for Registration

i. Every Supplier liable to be registered if aggregate turnover in financial year exceeds Rs. 20 lakhs/Rs. 10 lakhs in Special Category States (Amended by CGST Amendment Act,2018 w.e.f. 01/02/2019) :

Every supplier shall be liable to be registered under this Act in the state or Union Territory, other than special category states, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds Rs.20lakhs.

However, where such person makes taxable supplies of goods or services or both from any of the special category States, he shall be liable to be registered if his aggregate turnover in a financial year exceeds Rs.10lakhs. [First Proviso to Sec.22(1)]

However, the Government may, at the request of a Special category State & on the recommendations of the Council, enhance the aggregate turnover from Rs.10lakhs to such amount, not exceeding Rs.20lakhs & subject to such conditions & limitations, as may be so notified.

As per Article 279(4)(g), Special category States are States of Arunachal Pradesh, Assam, Jammu & Kashmir,Manipur,Meghalaya,Mizoram,Nagaland,Sikkim,Tripura,Himachal Pradesh & Uttarakhand.

On the recommendation of the State of Jammu & Kashmir, Arunachal Pradesh, Assam, Himachal Pradesh, Meghalaya, Sikkim & Uttarakhand, the threshold limit for registration in the said states is Rs.20lakhs.

Special Category States for the purpose of Sec.22 : The definition of Special Category States as contained in the explanation has been amended. As a result of the amendment,now, only Mizoram, Tripura, Manipur & Nagaland are Special Category States for the purpose of Sec.22.

Thus, the threshold limit of Rs.10lakhs is applicable for the State of Manipur, Mizoram, Nagaland & Tripura.

It must be noted that if a person having place of business in different States across India has one branch in any of the States being Manipur, Mizoram, Nagaland & Tripura, the threshold limit for GST registration will be reduced to Rs.10lakhs.

It must be noted that the Central Government vide Notification No. 10/2019-CT dated 07/03/2019 w.e.f.01/04/2019 has provided that any person, who is engaged in exclusive supply of goods & whose aggregate turnover in the financial year does not exceed Rs.40 lakhs is exempt from obtaining registration with certain exemptions.

4. How MSMEs comply with GST?

As a registered identity, each business unit registered as MSMEs working in format of proprietorship, partnership or company have to apply for a GSTN Number. The GSTN number as provided would be used in each and every business transaction specifying the flow of goods and services, GST collected and paid etc.

For an MSME to register under GST have to apply on GST online portal along with following documents:

1. Certificate of MSME Registration

2. Existing Service Tax/VAT/CST/Excise Registration details

3. Proprietor PAN details

4. Bank account details opened in name of business.

5. Aadhar details of proprietor

6. Address proof of business ;

7. Other documents as specified by government .

5.  Benefits of GST to MSME :

Reduction of Multiplicity of taxes: With summation of all taxes to GST, MSMEs would not be required to provide different tax registration details and would be able to pursue a restriction free trade.

Elimination to Cascading effect of taxes : With removal of tier based addition of taxes to goods and services at different levels, a proprietor in most cases have to face double payment of tax which was seeking to additional cost to business. But with GST, complete record is being maintained of all taxes paid, charged and received. Thus to a great extent it removed the cascading effect for business sector.

Common National Market : GST has provisioned free movement of goods to both inner corporations and outer states. It has created a single nationalized market for SMEs and MSMEs which was earlier restricted with a single identity number.

Simple tax Regime: For an MSME, it is difficult to maintain accurate record of all taxes paid at different levels and to get them to adjustment as per government requirement. But with GST, even a small transaction gets imputed with a specified GST rate provided and too without much effort of multiple tax calculations.

Lower Threshold Limit: For MSMEs, it is beneficial to opt for GST as the threshold limit have been defined as Rs 20 Lakh which was earlier stated Rs 10 lakh for registration in VAT spacing the registration gap. Further composition scheme is also there for MSMEs.

6. Major Steps by  GST Council to give relief to MSME

GST Council in the 32nd meeting held on 10th January, 2019 at New Delhi took following decisions to give relief to MSME (including small traders), and took following other decisions-

i. Increase in turnover limit for the existing composition scheme: The limit of annual turnover in the preceding financial year for availing composition scheme for goods shall be increased to Rs 1.5 crore. Special category States would decide, within one week, about the composition limit in their respective States.

ii. Compliance simplification: The compliance under composition scheme shall be simplified as now they would need to file one annual return but payment of taxes would remain quarterly (along with a simple declaration).

iii. Higher exemption threshold limit for supplier of goods: There would be two threshold limits for exemption from registration and payment of GST for the suppliers of goods i.e. Rs 40 lakhs and Rs 20 lakhs. States would have an option to decide about one of the limits within a weeks’ time. The threshold for registration for service providers would continue to be Rs 20 lakhs and in case of Special category States Rs 10 lakhs.

iv. Composition scheme for services: A composition scheme shall be made available for suppliers of services (or mixed suppliers) with a tax rate of 6% (3% CGST + 3% SGST) having an annual turnover in preceding financial year upto Rs 50 lakhs.

The said scheme shall be applicable to both service providers as well as suppliers of goods and services, who are not eligible for the presently available composition scheme for goods. 3.2 They would be liable to file one annual return with quarterly payment of taxes (along with a simple declaration).

v Effective date : The decisions at Sl. No. 1 to 3 above shall be made operational from the 1st of April, 2019.

vi. Free Accounting and Billing Software shall be provided to small taxpayers by GSTN.

We have seen what is MSME earlier. Now we will see what are the provisions for small taxpayers in GST ACT.

7. What is Composition Levy? (Sec.10) :

As per Sec.10 of CGST Act,2017,the composition levy is an alternative method of levy of tax designed for small taxpayers whose turnover is up to Rs.1.5 crore(Rs. 75 lakhs in case of some States) & who pays a flat rate of tax regardless of what they manufacture, provide as a service or trade they carry on.

The objective of composition scheme is to bring simplicity and to reduce the compliance cost for the small taxpayers. Moreover, it is optional and the eligible person opting to pay tax under this scheme can pay tax at a prescribed percentage of his turnover every quarter, instead of paying tax at normal rate.

8. Eligibility category for opting for Composition levy

Small Tax Payers whose aggregate turnover in the preceding Financial Year did not exceed Rs. 1.5 crore, will be eligible to opt for payment of tax under the composition scheme.

However, the aggregate turnover in the preceding financial year shall be Rs.75 lakhs in the case of an eligible registered person, registered under section 25 of the CGST Act,2017 in any of the following States, namely :

Special category States :

1. Arunachal Pradesh

2. Manipur

3. Meghalaya

4. Mizoram

5. Nagaland

6. Sikkim

7. Tripura

8. Uttarakhand

It will be noted that in case of Assam, Himachal Pradesh & Jammu & Kashmir, the turnover limit will be Rs. 1.5 crore.

It may also be noted that a taxable person cannot opt for payment of taxes under composition scheme say for supply of class of goods & services & opt for payment of taxes for supply of other class of goods & services.

9. Specified rate of Composition levy under GST

a) Manufacturers, other than manufacturers of such goods as may be notified by the Government (Ice cream, Pan Masala, Tobbacco products etc.): 1% ( 0.50% Central tax plus 0.50% State tax) of the turnover in the State or Union Territory.

b) Restaurant Services: 5% (2.5% Central tax plus 2.5% SGST) of the turnover in the State or Union Territory.

c) Traders or any other supplier eligible for composition levy: 1% ( 0.50% Central tax plus 0.50% State tax) of the turnover of taxable supplies of goods & services.

Services can be supplied by the Composition suppliers [Second Proviso to sec.10(1)] : A person who opts to pay tax under clause (a) or clause (b) or clause (c) may supply services (other than those referred to in clause (b) of paragraph 6 of Schedule II i.e. restaurant services), of value :

a) Not exceeding 10% of turnover in a state or union territory in the preceding financial year; or

b) 5,00,000 ,

10. Persons not eligible for Composition Scheme under GST :

Following persons are not allowed to opt for the composition scheme:

a) a casual taxable person or a non-resident taxable person;

b) Suppliers whose aggregate turnover in the preceding financial year crossed Rs.1.5Crore (Rs.75lakhs in case of Special Category States);

d) Supplier of services, other than those mentioned above in Second Proviso to Sec.10(1)

e) Persons supplying goods which are not taxable under GST law;

f) Persons making any inter-State outward supplies of goods;

g) Suppliers making any supply of goods through an electronic commerce operator who is required to collect tax at source under section 52; and

h) a manufacturer of following goods:

> Chapter 2105 00 00 : Ice cream and other edible ice, whether or not containing cocoa.

> Chapter 2106 90 20 : Pan masala

> Chapter 24 : All goods, i.e Tobacco and manufactured tobacco substitutes.

11. Payment of GST Tax & GST Return Filling :

A person opting for composition levy will have to pay tax on quarterly basis before 18th of the month succeeding the quarter during which the supplies were made (in Form CMP-08). The said persons shall furnish a return for every financial year or, as the case may be, part thereof in FORM GSTR-4 of the Central Goods and Services Tax Rules, 2017, on or before the 30th day of April following the end of such financial year.

How to revise GSTR-4?

GSTR-4 cannot be revised after filing on the GSTN Portal. Any mistake in the return can be revised in the next month’s return only. It means that, if a mistake is made in the GSTR-4 filed for the July-September quarter, the rectification for the same can be made only when filing the next quarter’s GSTR-4.

Late Fees and Penalty

A penalty of Rs. 200 per day is levied if the GSTR-4 is not filed.

The maximum penalty that can be charged is Rs. 5,000.

Also, if the GSTR-4 is not filed for a given quarter, then the taxpayer cannot file the next quarter’s return either.

As per Latest Notification No. 73/2017 – Central Tax late fees for GSTR-4 has been reduced to Rs. 50 per day of default. Also, the late fees for NIL return in GSTR-4 have been reduced to Rs. 20 per day of delay.

12. Input Tax Credit (ITC) under GST

A taxable person opting to pay tax under the composition scheme is out of the credit chain. He cannot take credit on his input supplies. When he switched over from composition scheme to normal scheme, eligible credit on the date of transition would be allowed. Also, as the composition dealer cannot collect tax paid by him on outward supplies from his customers, the registered person making purchases from a taxable person paying tax under the composition scheme cannot avail credit.

13.  Invoice under GST

A person paying tax under the composition scheme can issue a bill of supply in lieu of tax invoice. The person exercising the option to pay tax under section 10 shall comply with the following other conditions , namely: –

a) he shall mention the words “composition taxable person, not eligible to collect tax on supplies” at the top of the bill of supply issued by him; and

b) he shall mention the words “composition taxable person” on every notice or signboard displayed at a prominent place at his principal place of business and at every additional place or places of business.

14.  Maintenance of Accounts :

Following records are not required to be maintained by a supplier who has opted for composition scheme as per Rule 56(2) & (4) of the CGST Rules,2017 :

1. Commodity wise Stock account

2. Accounts containing tax details including ITC

15.  Reverse Charge Mechanism (RCM) :

Composition Taxpayers will be liable to pay tax under RCM in relevant cases at normal tax rates. No credit will be allowed of tax paid.

16. Penal Consequences :

If a taxable person has paid tax under the composition scheme though he was not eligible for the scheme then the person would be liable to penalty and the provisions of section 73 or 74 shall be applicable for determination of tax and penalty.