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Does threshold exemption really exist ? |
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Does threshold exemption really exist ? |
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DOES THRESHOLD EXEMPTION REALLY EXIST UNDER GST ACT ? Answer is big “NO”. Threshold exemption of turnover of ₹ 20 lakhs is only in the name. Threshold exemption of ₹ 20 lakhs has been denied by Govt. by attaching following strings to the businessmen :- As per Section 24 of the CGST/SGST Act, the following categories of persons shall be required to be registered compulsorily irrespective of the threshold limit: i) persons making any inter-State taxable supply; ii) casual taxable persons; iii) persons who are required to pay tax under reverse charge; iv) electronic commerce operators required to pay tax under sub-section (5) of section 9; v) non-resident taxable persons; vi) persons who are required to deduct tax under section 51; vii) persons who supply goods and/or services on behalf of other registered taxable persons whether as an agent or otherwise; viii) Input service distributor (whether or not separately registered under the Act) ix) persons who are required to collect tax under section 52; x) every electronic commerce operator xi) every person supplying online information and data base retrieval services from a place outside India to a person in India, other than a registered person; and, xii) such other person or class of persons as may be notified by the Central Government or a State Government on the recommendations of the Council. xiii) any person who has turnover below Rs.20 lakhs and obtains GST registration voluntarily as per FAQ released by Board on 28.6.2017. Vendors (Job workers) are forced by the big companies to get registration and thus they would forfeit their threshold exemption which would result in payment of GST from Re one. xiv) any person who wants to opt for Composition Scheme has to get himself registered and has to pay GST from Re. one and thus forfeiting his threshold exemption. A businessman with turnover of ₹ 20 lakhs is a small business man whether he is a manufacturer or dealer or service provider. Virtually, Govt. has snatched threshold exemption from small persons by imposing aforesaid conditions on them. It tantamounts to snatching fundamental right to live. These are the noiseless cries of small business which must be listened to by the Govt. In case the Govt. intends to woo the hearts of small businessmen, nay, middle class families, Govt. must remove all the caps imposed upon them and enable them to avail threshold exemption like in pre-GST period. A person with a turnover of 20 lakhs has to pay rent of premises, maintenance of premises, Income Tax and now GST and life is not restricted to the basic needs of Roti, Kapda Aur Makan. There are necessities like education and health expenses, savings for future etc. How far such meager threshold exemption with too much restrictions is justified ? The very purpose of threshold exemption is defeated by the aforesaid conditions imposed upon for availment threshold exemption. It has actually been denied. Such small businessmen feels suffocated and hence aggrieved with such non-existent threshold exemption. Small Scale Industries and Small Service Providers have not been given relief by way of enhancing threshold exemption limit for 10 years and 9 years respectively. It is evident from the following data:
Now after a decade manufacturers, wholesale dealers, Retailers and Service Providers have been brought at par by way of allowing threshold exemption limit of turnover of just ₹ 20 lakhs each. Here it would be pertinent to analyse why any Govt. did not increase threshold exemption for such a long period which was overdue. Rate of inflation may be the possible factor for non-increase of threshold exemption for a decade. So it is worthwhile to have a look into the history of rates of inflation existed during last 15 years which are given in the table given below:
From a perusal of above, it can be deduced that Govt. has brought down threshold exemption to ₹ 20 lakhs from ₹ 1.50 crores on the basis of rate of inflation remained in 2016 and 2017. Though the rate of inflation remained at peak during the years 2008, 2009, 2010 and 2012, yet threshold exemption limit was not increased at all. Thus it remained stagnant at ₹ 1.50 crores. The rate of inflation does not reflect true picture inasmuch as in real life prices of all items have increased five or six times. Thus SSI units have suffered a lot due to stagnant threshold limit for a decade. As per well-known Statisticians, statistical data does not indicate 100% accuracy. So the rate of inflation cannot be relied upon for all economic policies of Govt. Govt. cannot deny the sky rocketing prices of all commodities. The prices of gold, an international currency gives the true picture of sky rocketing prices of all the commodities as prices are influenced by international marketing forces. Govt. has done gross injustice to all manufactures, dealers and service providers by fixing threshold exemption of just ₹ 20 lakhs each. Ultimately, repercussion will be on poor and middle class families. Modvat facility was introduced in April, 1986 and thereafter it was called Cenvat Credit and Input Tax Credit. Even a period of three decades has lapsed, there is a large number of dealers and service providers who do not even know what is this credit facility and how they can get set-off. So all small manufacturers, dealers and service providers will be forced to hire C.A.’s services and they cannot afford the high fee of CA’s. It is happening because of conditions imposed upon for denying them their right of threshold exemption. In case Govt. wants to woo the hearts of poor ( which constitute 23% of population)and middle class (which constitutes 50% of population in India) families in the interest of nation, Govt. should lift all the pre-requisites imposed for availing small scale exemption irrespective of the reasons foreseen behind this and enhance threshold exemption to ₹ 50 lakhs and Rs. One Crore for Composition Scheme respectively. SSI units, Small businessmen (dealers and Service Providers) deserve this relief. Keeping in view the record-breaking rising prices as well as non-enhancement threshold exemption limit for a decade, now threshold exemption is suggested to be revised as under:- (i) For Manufacturers (SSI units) : Rs.two crores (ii) For dealers : ₹ 50 lakhs (iii) For Service Providers : ₹ 30 lakhs Such increase is not unjustified by any amount of logic.
By: KASTURI SETHI - July 7, 2017
Discussions to this article
Welcome Sethi Sir to Articles Section. You have impressed on your first article itself.
Sir, Thanks a lot. Really, you are my source of inspiration. K.L.SETHI
Nice article Sethi sab. Moreover, it appears that in case of supply received from an unregistered person, whether he is falling under threshold exemption or not, to a registered person; he is liable to pay the tax under reverse charge. I am referring Section 9(4) of CGST. That means, the Govt. is still not losing the revenue in most of the cases. Please correct me if I am wrong.
Sh.Nand Kumar Panicker Ji, Sir, I agree with you in toto. You are absolutely right. Thanks for liking and appreciating my article.It has boosted my moral. K.L.SETHI
Thanks Mr.Sethi Sir to bat for small scale business community. I fully agree with you there is no threshold exemption because even if a registered person buys from an un-registered dealer he has to discharge GST under reverse charge. If 'X' turnover is below 20 lakhs he need not get registration and he is exempted from all compliance. However, it is proposed to collect the tax from buyer under reverse charge. This clearly shows that Government wants to tax all transaction. The only remedy is if direct / ultimate consumer buys from the unregistered dealers, then no GST. Even in this transaction, the GST involved on the input tax credit is a cost to be borne by the ultimate consumer as no credit is eligible for the exempted seller.
Sir, Thanks for your your appreciation and inspirational compliments.
Nice piece indeed. . Congratulations
Makes for an interesting read; for that matter, in one's longstanding form conviction, in the ultimate analysis, any such threshold for 'exemption' is highly arbitrary, founded/stemmed on a dubious idea, - being a 'rule of thumb', arbitrarily fixed by bureaucracy,with no sanctity attached ! Universally so, not merely in taxation regimes, but in every other- e.g. KAR rules, pending notification, under RERA - see the separate post of y'day ! NOTE: It is time now; what needs but remains to be realised , going by wisdom to be gathered from past experience, is that, - it is any such arbitrarily fixed threshold, with no rhyme or reason, that accounts for most of the manipulations indulged in , by vested interests, and having the inevitable potential for corruption, top to bottom,
To Add: Reference is to the Post on Facebook, of y'day - sub: KAR. rules under RERA !
A very good analysis and thanks to you for highlighting. Based on all economic indices it is only apt to increase the threshold limit for any manufacturer, dealer or service provider to more than ₹ 20 lakhs. You very well said at least ₹ 30 lakhs should be fixed, may be, without attaching any strings or conditions. If the dealer or service provider wants to avail ITC or other benefit let him decide. Moreover by applying the same logic and actual economic conditions the basic exemption limit for taxable income under the Income-tax Act should also be raised to at least ₹ 4 lakhs. The recent changes in GST or demonetisation or Income tax have not improved the lot of common man, i.e., lower or middle income class. They are still a suffering and are suffocated to a large extent by the recent phenomenal increase in the day-to-day prices of commodities and that too price increase effected by the traders due to new GST with respect to hotels, food products, sand, construction materials etc.
Good Article and analysis. Thank you so much Sir
I am thankful to Dr.Sanjiv Agarwal, Sh.Baalajee K.S., Sh.Swaminathan Venkat Raman for liking my article. K.L.SETHI
Sihey cannot collect GSTr, indedd you have analysed the problem of assessees not knowing about existing taxes as they are not coming under tax net. In addition to above, my assessee which is a trust having income of 15 lakhs donation and rent from commercial buildings of ₹ 9 lakhs per annum who is adviced to take GST as the turnover exceeds 20 lakhs. What is the remedy for them as they could not collect GST from teneants who are all small traders?
Dear Sir, Whether Trust registered under Section 12 AA of Income Tax Act ?
An UPDATE, of not unrelated but of contextual relevance (view points, as shared elsewhere):
Sir A very bold and correct analysis of the so called exemption limit set by GSt Council. It appears that the limit is set only for the retailers who would not be forced by their customers to take registrations to avoid hassels fo reversed charge mechanism for receiving supplied from URD and would easily do the tarse using verious names of business verticals under same PAN just as they could do under VAT and avoid payment of Tax but for those who supply goods to other registered persons, it is a necessicity to get register to continue the business w/o loosing custmers. The clause of payment of GSt under RCM for suplied received from URD must be revoked and it should be left to the business entity to decide whether to pay under RCm and avail ITC or go for cost addition to goods supplied. The Associates of the Trade and Tax consultants must strongly put this across to governmwnt and to GST Council.
Sh. Vinay Kunte Ji, Sir, Thrilled to peruse your comments and analytical approach. Thanks for your contribution on the issue.
Very nicely analysed article. Earlier small service providers were encouraged by companies because they were exempted and no tax was payable by recipient of service also. Now they will not get clients as the tax will have to be paid under reverse charge mechanism. Moreover the casual tax payer is not exempted and hence practically nobody would be exempted. Regards
Sir, Section 2(6) of CGST Act defines (6) “aggregate turnover” means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess; Exempt supplies are also to be included into aggregate turnover to arrive at threshold exemption limit. Treat the amount as cum-tax.
Sh.PMR GOWRISSANKAR JI, Sir, Will you please let me know what is the basis of your comments mentioned below ? "indeed you have analysed the problem of assessees not knowing about existing taxes as they are not coming under tax net". Just for enrichment of my knowledge. Thanks & Regards. K.L.SETHI
Respected Sir, Appreciate the analysis made in the debut article. Your stint in the department has ably assisted in you compiling this masterpiece and has brought out in the open the mood swings of the powers that be. SSI units began their exemption journey (if I am not mistaken) way back in the year 1985 [77, 85/85-CE] with exemption limit of 7.5 lakhs without any strings attached of having any SSI registration certificate issued by the Directorate of Industries and this exemption was allowed in the next FY if they had not crossed 7.5 lakhs. Later the SSI notification 175/86-CE saw upheavals in the form of the unwarranted notification 55/92-CE later and the corrective notification 67/92-CE. Let aside the fact that the exemption grew to 15 lakhs and later to 30 lakhs and in the year 1998 to 50 lakhs and continued as mentioned in the tabulation given by you. All through out the emphasis was to give impetus to the SSI units which are the major source of employment in a populated country like ours. Having said that it appears that the ideology behind this SSI exemption remained only lip service and without taking into account the increase in cost of raw materials and the cost of living, the exemption limit remained stagnant at ₹ 1.50 crores for the past ten years. It seems that the government wanted everyone to join the CENVAT chain but is it really workable. Your mention that the large units sourced their raw materials from the exempted units and thus assisted these small units is absolutely true. Readers would recall that way back in the MODVAT era, we had a rule 57B of CER, 1944 which allowed manufacturers who purchased from SSI units an extra "5%" of credit of Basic Excise duty. I think many in the rule making body seem to be blissfully unaware of this. Be that as it may, as rightly questioned by you "Does threshold exemption really exist?" should be what all the SSI associations be asking the government. The cost of running a factory is not cheap and coupled with the GST return filing and the complex rules and forms, this would pinch the SSI unit further. Agreed, that there may be some instances of evasion of duties by these SSI units but for the fault of a few should the entire industry suffer. For the ineptness of the authorities in catching hold of these unscrupulous elements, others should not be held to ransom. Every law comes along with a loophole and only those who are intelligent enough, exploit it. Same would be bound to be replicated in the present scenario too. I sincerely feel that if the government really wants to extend an exemption, it should be without any strings attached. Because if any of the 14 clauses (which the learned author has cited) is violated, the exemption would be denied and the assessee would be required to pay a heavy price. Else remove all exemptions and let all of them vie for business on a similar platform. Thanks, once again, Sethiji for highlighting the hollowness of this exemption. As they say, the attitude seems to be - Heads I win, Tails you lose! Thanks and regards Abhishek Panicker
Dear Sh Kasturi ji, very well defined. Keep it up.
Very nice article...well reaserched...the article has pointed the real problem in a very simple and easy way... Regards Abha
I compliment to you Mr Sethi for writing this article and I fully endorse the views expressed by you.Government Of India should be practical and must consider your beautiful suggessions in order to make GST a practical and acceptable to all businessmen. By CA Ashok K Khanna 14th July, 2017
Sh.Ahok Khanna C.A. Thanks for your compliments, Sir.
Sri Kasturi Sir , the concern in the article is true. Nicely written. I know the hard work that needs to write an article. Your hard work and effort is appreciable. I read all your articles and liked the way you write it. The words flow free without any jargon or legal language. It is simple and easy read and understand. I remember the first article you wrote. The recent one also where you have highlighted the revenue loss to the exchequer. The topic you choose to write is carrying weightage. Thanks Sir once again.
Sh. Ganeshan Kalyani Ji,. Thanks for devoting your precious time to read and expressing your valuable views.
Well stated, Sethi Ji. A nice and informative article. Thanks While making the law, the Government has ignored the Indian conditions and economic scenario. Just take one illustration: If a mechanic or dehari majdoor or piece rate worker (other than employee) comes on paddle-cycle or motor-cycle from Haryana (where he is residing) to Delhi to perform his services (may be at the construction site or to repair the televisions or AC or washing machine or any other activity), he would be making either the inter-State supply from Haryana or would be considered as casual taxable person in Delhi: and in both the cases, in the absence of the threshold limit for registration: would that poor person be liable for registration under the GST?
Good example. It is not workable.
Sh.Ashok Aggarwal Ji, Sir, My duty is to raise voice in the interest of small businessmen. How to make it workable is up to Govt. of India. There must not be 'buts' and 'ifs' for availing threshold exemption. By attaching so many strings to small scale exemption means it is denied actually. Small mean small and not to look hither and thither. Govt. will earn displeasure of small scale traders, if strings are not removed in the interest of society as well as nation.
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