GST Exemption

GST Exemption: A Brief Overview

The introduction of GST in India is a revolutionary step that is expected to cure all the ailments the existing complex tax structure is suffering from. It is primarily conceptualized to replace various sorts of taxes levied by the central and state governments with a well-defined tax structure. As opined by several tax specialists, the implementation of GST Act would earmark a new era of glory for the enterprises. Nonetheless, we must acknowledge that the theory of “one nation, one tax” might sound not-so-convincing to the businesses with limited availability of resources..

Hence the need of classifying businesses (as per their annual turnover) was felt across the country. That’s why, the Central Government, in consultation with Goods and Services Tax Council (GSTC), decided to set the criteria on which taxpayers or businesses can be classified (so as to decide who all are liable to pay GST).

The concept of GST threshold exemption soon became a reality, and the model GST Law empowers the concerned government (State or Central) to exempt supplies from the levy of GST (either generally or subject to conditions) based upon the recommendation of the GST Council. It was decided that taxpayers with an annual turnover below ₹20 lakh (₹10 lakh for north-eastern as well as hill-area states) would be exempt from GST. Additionally, a compounding option (to pay tax at a flat rate without credits) is also made available to the small taxpayers having an annual turnover of up to ₹50 lakh. GST exemption for small business firms would be totally optional.

Small taxpayers (having an aggregate turnover of up to ₹50 lakh in a financial year) shall be eligible for composition levy. Under this scheme, a taxpayer is required to pay tax as a percentage of his/her turnover during any financial year without the benefit of Input Tax Credit (ITC). If a taxpayer opts for composition levy, he/she shall not collect any tax from his/her customers.

If you have a query regarding eligibility for GST exemption benefit, feel free to contact our experts.

Why was threshold for GST exemption conceptualized?

The Threshold for GST exemption was primarily conceptualized to keep small businesses, having low annual turnover, out of tax net. GST threshold exemption has three-fold objectives:

  • It is a very challenging task to administer and oversee small traders, and it must not be forgotten that the cost of administering such traders (businesses with low annual turnover) is very high in comparison to the tax they pay.
  • By assuring GST exemption for small business firms, the cost associated with GST compliance would be saved for such small business firms.

  • Last but not the least, the idea of GST exemption for small traders can ensure them relative advantage over large enterprises (with high annual turnover) on account of lower tax incidence.

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