In what could be a big relief for MSMEs, the GST Council has made a decision to extend the ₹40 lakh threshold exemption for intra-state sales and the ₹1.5 crore threshold under the composition scheme to the online sellers. In its 47th meeting held at Chandigarh on 29 June 2022, the GST Council made several important announcements and made changes to the GST rates of goods and services in India.
As the GST taxation regime turns 5 years old this July, several major announcements are awaited including the extension of the period of compensation cess to states, bringing online gaming, horse racing and casinos under the ambit of GST, and constituting a GST Appellate Tribunal. These decisions will be taken in the next GST Council meeting in August 2022 which will take place in Madurai.
About two dozen goods and services including unbranded food items, curd, buttermilk, low-cost hotels, cheques, maps, etc. will see a rise in GST rates from 18 July 2022. Several goods such as LED lights, solar water heaters and writing inks, etc will also see an upward trend in their prices to correct irregularities that had resulted from inverted duty structures where tax rates on inputs were higher than the final product. For the full list, check here.
As inflation reaches an 8-year high, many experts have voiced concerns about raising the tax rate on goods and services. However, Finance Minister Sitharaman said that “inflation was everyone’s concern and the Council’s decisions were not taken in isolation.”
The GST Council also deferred the proposal to levy a 28% tax on online gaming, casinos and horse racing and sent the proposal back to a Group of Ministers (GoM) to re-examine the issues after holding discussions with the states and stakeholders.
Ease of access to e-commerce for MSMEs
One of the GST Council’s major decisions taken in the 2-day meeting was for the benefit of small sellers, micro-businesses and the unorganized sector looking to sell on e-commerce websites.
With this decision, online sellers will now be treated on par with offline sellers for registration requirements under GST with respect to intra-state trade. Till now, these small businesses required GST registration despite what their sales were. Now, after this change in GST rules, these MSMEs will not need registration if their annual turnover is up to ₹40 lakh for selling goods within the state and ₹20 lakh for providing services within the state.
Moreover, sellers who have applied for the composition scheme will now be eligible to make intra-state sales via e-commerce operators. These changes would be made effective from 1 January 2023.
These composition dealers who have a turnover of up to ₹1.5 crores and who pay GST at flat rates with an input tax credit (ITC) will be allowed to make intrastate supplies through e-commerce companies.
However, this move which is set to benefit small sellers is subject to certain conditions. These online sellers will have to declare their Permanent Account Number (PAN), and principal place of business. In addition to this, the principal place of business of the unregistered businesses will be restricted to one state only, and they will not be allowed to make interstate taxable supplies.
It is important to note that the condition of compulsory registration has placed an extra disadvantage on undersized vendors, and raised the compliance and operation expenses for such dealers, which negatively impacted their margins. Moreover, the dropout rate of online vendors was nearly 60-70%. About 5 crore MSMEs are presently unable to sell online because of mandatory GST provisions.
The components of the scheme will be designed by the law committee of the Council. The decision is being seen in the light of the government operationalizing Open Network for Digital Commerce (ONDC). Now the GST registration prerequisites for e-commerce suppliers will no longer be a hindrance in the listing of small businesses on the ONDC.
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