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TMI BlogGST- THRESHHOLD EXEMPTION MEANS ‘EFFECTIVE RATE OF TAX’ IS REDUCED TO NIL SO NO NEED TO COLLELCT TAX.X X X X Extracts X X X X X X X X Extracts X X X X ..... GST- THRESHHOLD EXEMPTION MEANS ‘EFFECTIVE RATE OF TAX’ IS REDUCED TO NIL SO NO NEED TO COLLELCT TAX. - By: - DEV KUMAR KOTHARI - Goods and Services Tax - GST - Dated:- 18-7-2020 - - SUMMARY: THROUGH SCHEME OF EXEMPTION UP TO THRESHOLD LIMIT, EFFECTIVE RATE OF TAX IS REDUCED TO NIL, THEREFORE, NO NEED TO COLLECT TAX. THE LIMIT SHOULD BE APPLICABLE ON TAXABLE ITEMS ONLY AND EXEMPTED OR NIL RATED ITEMS SHOULD NOT BE COUNTED FOR REGISTRATION, FILING OF RETURNS ETC TO AVOID UN-NECESSARY WORK OF SUPPLIERS , SERVICE PROVIDERS AND ALSO GST OFFICERS- CLARIFICATIONS AND AMENDMENTS ARE REQUIRED TO AVOID UN-NECESSARY WORK AND LITIGATION. Earlier article dt.23062020 (ddmmyyyy) GST- threshold limit law need to be amended to base on taxable turnover. Preamble and objects of GST laws not considered by AAR causing ruling which will cause lot of un-necessary work, harassment and litigation by forcing many to get registered though there will be no tax liability and tax collection. In this article some of provisions and a ruling by AAR was discussed and it was pointed out that the provisions need to be amended to make them consistent with objects of GST laws. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, on further study, author feels that only a clarification is required and amendment is not necessary. Clarification is required because otherwise with a view to play safe GST consultants advice to get registered and pay tax on sale or service of any taxable item although, value doe not reach threshold limit. Purposes of exemption provisions section 11 with highlights: CENTRAL GOODS AND SERVICES TAX ACT, 2017 Power to grant exemption from tax. 11. (1) Where the Government is satisfied that it is necessary in the public interest so to do , it may, on the recommendations of the Council, by notification, exempt generally, either absolutely or subject to such conditions as may be specified therein, goods or services or both of any specified description from the whole or any part of the tax leviable thereon with effect from such date as may be specified in such notification. (2) Where the Government is satisfied that it is necessary in the public interest so to do , it may, on the recommendations of the Council, by special order in each case, under circumstances of an exceptional nature to be stated in such order, exempt from payment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax any goods or services or both on which tax is leviable. (3) The Government may, if it considers necessary or expedient so to do for the purpose of clarifying the scope or applicability of any notification issued under sub-section (1) or order issued under sub-section (2), insert an explanation in such notification or order, as the case may be, by notification at any time within one year of issue of the notification under sub-section (1) or order under sub-section (2), and every such explanation shall have effect as if it had always been the part of the first such notification or order, as the case may be. Explanation. For the purposes of this section, where an exemption in respect of any goods or services or both from the whole or part of the tax leviable thereon has been granted absolutely, the registered person supplying such goods or services or both shall not collect the tax, in excess of the effective rate, on such supply of goods or services or both. From FAQ prior to coming into force of GST- background: FAQ [OLD] on Goods and Services Tax (GST) - (December 2015) Q 13: What is the concept of providing threshold exemption for GST? ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ans: Threshold exemption is built into a tax regime to keep small traders out of tax net. This has three-fold objectives: a. It is difficult to administer small traders and cost of administering of such traders is very high in comparison to the tax paid by them. b. The compliance cost and compliance effort would be saved for such small traders . c. Small traders get relative advantage over large enterprises on account of lower tax incidence. The present thresholds prescribed in different State VAT Acts below which VAT is not applicable varies from State to State. A uniform State GST threshold across States is desirable and, therefore, as already mentioned in Answer to Question 6, it has been considered that a threshold of gross annual turnover of ₹ 10 lakh both for goods and services for all the States and Union Territories might be adopted with adequate compensation for the States (particularly, the States in North-Eastern Region and Special Category States) where lower threshold had prevailed in the VAT regime. Keeping in view the interest of small traders and small scale industries and to avoid dual control, the States also co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered that the threshold for Central GST for goods may be kept ₹ 1.5 Crore and the threshold for services should also be appropriately high. FAQ on GST (2nd Edition) dated 31.3.2017 Q 18. Who is liable to pay GST under the proposed GST regime? Ans. Under the GST regime, t ax is payable by the taxable person on the supply of goods and/or services. Liability to pay tax arises when the taxable person crosses the turnover threshold of ₹ 20 lakhs (₹ 10 lakhs for NE Special Category States) except in certain specified cases where the taxable person is liable to pay GST even though he has not crossed the threshold limit. The CGST / SGST is payable on all intra-State supply of goods and/or services and IGST is payable on all inter- State supply of goods and/or services. The CGST /SGST and IGST are payable at the rates specified in the Schedules to the respective Acts. Discussion: Exemption: An exemption prescribing minimum amount should be meaningful and such exemption should be considered in a purpose seeking manner to achieve the object and not in a manner that the purpose is not full filled or is frustrated. Threshold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... limit under GST: Threshold limit under GST is also provided to exempt small suppliers and service providers from compliance and to make their business easy. Popularly as a measure of ease in doing business. This is clear from above provision and answers to some FAQ. Exemption is introduced to extend ease of doing business for small suppliers and service providers and also to ensure that there is no efforts required by GST authorities in monitoring small suppliers / service providers and attention is placed on larger suppliers and service providers. Tax need to be imposed on taxable turnover (TT) if TT exceed threshold limit: In view of provisions of section 11 including Explanation thereto, it is clear that where an exemption is granted , the registered person supplying such goods or services or both shall not collect the tax, in excess of the effective rate, on such supply of goods or services or both. This provision apply to goods or services or both. In case of small suppliers, the exemption is in respect to goods or services or both up to the amount of threshold limit. In other words it can be said that up to the amount of threshold limit, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as may be applicable from time to time, even a registered person shall not collect the tax, in excess of effective rate. In case of cases being exempted by way of threshold limit, it is clear that effective rate is nil for any class of goods or services up to the amount of threshold limits. A clarification is desired: The provision of section 11 is clear, however, on discussion with many GST experts author felt that there is some confusion. A view is taken that section 11 is in respect of rates of tax on goods and services and not for threshold limits. Author differ from the said view for the following reasons: The scheme of exemption is based on specific rates and also general rate or general exemptions. The use of expression effective rate of tax clearly shows that the effective rate of tax can be reduced to lower rate or nil rate by any general or special order. Threshold limit based exemption is a general exemption. There is no ambiguity that a supplier or service provider is not liable to pay tax unless his taxable turnover crosses the threshold limit in a year. However, it is desirable that a clarification should be issued in this re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gard. To achieve purpose of threshold limit: To achieve the purpose of exemption by way of threshold limit, providing exemption to small suppliers, it is necessary that for all purposes only taxable turnover should be considered and items of sales and services which are exempted or not taxable or zero rated items etc. should not be considered in the amount of threshold limit or basis exemption. However, as discussed in my earlier article, due to some provisions which are inconsistent with the objects of GST law and there are provisions drafted with utmost caution and rigidity we find that these inconsistent provisions exist . It also seems that general feeling with a view of abundant caution and also to promote GST practice, it is assumed that for the purpose of threshold limit ascertainment, one is required to include other sales and services also, and if total sales and services ( including exempted items) exceeds threshold limit, then the supplier is required to get registration under GST law and pay GST on taxable items without any exemption as per exemption by way of threshold limit. A prevailing view is that once a person is registered ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... due to including all types of turnover) then he is required to pay GST even on one rupee of taxable sales or services. This view was also expressed by one of learned reader Shri Sharad Anand, in discussion on my earlier article. He wrote as follows: Sir, Well explained. GST is a tax on business transactions and not on personal transactions. In your article you mentioned : on such registration there will be only formalities and procedures to be complied with though there will not be tax payable. But if a person gets registration then in that case he is required to pay GST from rupee one taxable supply. In the given case if he gets registration then he is required to pay GST on rent income. Un quote: Similar views were expressed by some of CA in my contact who are mainly practicing in field of GST. However, it seems that the scope of exemption to reduce effective rate of tax in any manner is not understood properly. In my earlier article I had also expressed view that some provisions need to be amended. However, after above study, I feel that only a clarification from appropriate authority is required, to clear doubts, so far tax payable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on supply or services up to threshold limit is concerned. Now I am of firm view that when a threshold limit is prescribed, the effective rate of tax is reduced to nil in respect of all items of supply and services till the threshold limit is reached. However, to avoid un-necessary requirement to get registered, and file return etc. if total turnover exceeds threshold limits, then it will be proper to amend provisions also to avoid inconsistency of exemption , registration and other formalities. Unintended hardship and litigation need to be avoided: If exempted type of sales and services are also included then many people who have some amount of taxable category of sales and services and many are exempted and on sum up of all TT exceeds threshold limit then they will be required to get registered , file returns , pay GST on any amount of taxable sales or service. For example in ruling of AAR discussed in earlier article, the applicant had small amount of taxable sales and services which was much less than threshold limit, however by including other deemed sales and services his total turnover exceeded threshold limit. Therefore AAR opined that he is r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equired to get registered. In that case even amount of interest of PPF and personal loans were also included to examine whether turnover exceeds threshold limit. In that case in application question was not raised about taxability of taxable amount being below threshold limit. And the object of GST law was also not discussed. If as a consequence of registration a registered supplier or service provider is required to pay tax on any amount of sales or service then there will be large scale of unintended defaults in getting registration, paying tax and filing returns. For example, many of the following type of people will be forced to get registered: Retired persons having some taxable receipts like rent or consultancy fees with other receipts , interest receipts etc. Agriculturist having some rental receipts from house property, rent for allowing others to utilize tractors, pumping sets for irrigation, other machines in farms. Additional work for GST authorities: If exempted amount of sales and services are to be included then to monitor requirement for registration and to collect tax, and ensure compliances, GST authorities will be required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to enquire about all type of sales and services even from petty suppliers and service providers and to find out obligations for registration and payment of tax, filing of returns, and taking action for non-compliances etc. This is not intended and goes against principal of objectivity in taxation by way of GST. Therefore appropriate amendments are required, and in mea while administrative instructions can be issued so that tax authorities do not start un-necessary enquiry, issue of notices for filing of returns and for levy of penalties etc. Learned readers are requested to send their views for brain storming. - Reply By KASTURI SETHI as = Dear Sir, I agree with your views. Actually threshold exemption has been denied by including the value of exempted services and goods into the aggregate turnover. A person is forced to obtain registration even if his taxable turnover is much below threshold exemption limit. My article titled, Does Threshold Exemption virtually exists ? was published in this forum on 7.7.2017. Full freedom should be given to small traders/manufactures/service providers if their taxable turnover falls below threshold limit. Wha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is the logic behind including exempted turnover into aggregate turnover for arriving at threshold limit ? De facto , it is denial of threshold exemption and and a great injustice to small business people. A copy of your article should be sent to the GST Council and Board for implementation of your suggestions in the interest of small manufacturers, dealers and service providers. Dated: 19-7-2020 Reply By SANJAY MALHOTRA as = A reverse googly to bring small traders into the ambit of GST by enlarging the scope of aggregated turnover. Dated: 20-7-2020 - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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