India is a country that has seen significant changes in the tax regime over the past few years. One of the most noteworthy changes has been the introduction of the Goods and Services Tax (GST) in 2017. GST is a comprehensive tax levied on the supply of goods and services throughout India. The Lok Sabha introduced major changes in the GST bills on March 27, 2017, which have had a profound impact on businesses in India. In this article, we will explore these changes and their implications for small and medium-sized businesses and startup founders in India.
GST is an indirect tax that replaced a host of other indirect taxes such as excise duty, VAT, and service tax. The tax is levied on the value addition at each stage of the supply chain. GST has been introduced with the objective of creating a common market across India, making it easier for businesses to operate across state boundaries.
The Lok Sabha introduced several key changes in the GST bills on March 27, 2017. These changes were aimed at simplifying the tax regime and making it more business-friendly. The major changes are as follows:
The composition scheme is a scheme under GST that allows small businesses with a turnover of up to Rs 1.5 crore to pay tax at a lower rate. The Lok Sabha increased the turnover limit for businesses that are eligible for the composition scheme to Rs 75 lakh. This means that businesses with a turnover of up to Rs 75 lakh can now opt for the composition scheme and pay tax at a lower rate.
The reverse charge mechanism is a mechanism under GST where the recipient of the goods or services is liable to pay tax instead of the supplier. The Lok Sabha deferred the implementation of the reverse charge mechanism for purchases made from unregistered dealers until March 31, 2018. This means that businesses will not be required to pay tax under reverse charge mechanism for purchases made from unregistered dealers until March 31, 2018.
The E-way bill is a document that needs to be generated for the movement of goods worth more than Rs 50,000. The Lok Sabha introduced a provision that makes it mandatory for businesses to generate E-way bills for the movement of all goods, irrespective of their value. This provision has been introduced with the objective of ensuring better tracking of goods and reducing tax evasion.
Input tax credit is the credit that businesses can claim for the tax paid on inputs used in the production of goods or services. The Lok Sabha introduced a provision that restricts the input tax credit to 20% of the eligible credit where the supplier has not uploaded the invoice details. This provision has been introduced with the objective of ensuring better compliance and reducing tax evasion.
The registration threshold is the turnover limit at which businesses need to register under GST. The Lok Sabha increased the registration threshold for businesses that are engaged in the supply of goods to Rs 40 lakh. This means that businesses with a turnover of up to Rs 40 lakh are not required to register under GST.
The changes introduced in the GST bills have several implications for small and medium-sized businesses and startup founders in India. Some of the key implications are as follows:
The increase in the turnover limit for businesses that are eligible for the composition scheme is expected to benefit small businesses. By opting for the composition scheme, businesses can pay tax at a lower rate, which will reduce their tax liability. This will free up resources that can be used for other business activities.
The deferment of the implementation of the reverse charge mechanism for purchases made from unregistered dealers is expected to provide relief to small businesses. Small businesses often make purchases from unregistered dealers, and the implementation of the reverse charge mechanism would have increased their tax liability. The deferment of the implementation of the reverse charge mechanism provides them with more time to prepare for the change.
The introduction of the mandatory requirement for the generation of E-way bills for the movement of all goods will increase the compliance burden for businesses. Businesses will need to generate E-way bills for all goods, irrespective of their value, which will entail additional costs. However, the provision is expected to reduce tax evasion and ensure better tracking of goods.
The provision that restricts the input tax credit to 20% of the eligible credit where the supplier has not uploaded the invoice details is expected to increase compliance. The provision will encourage suppliers to upload invoice details, which will ensure better compliance and reduce tax evasion.
The increase in the registration threshold for businesses that are engaged in the supply of goods will provide relief to small businesses. Small businesses often find it difficult to comply with the requirements of GST, and the increase in the registration threshold will reduce their compliance burden.
In conclusion, the major changes introduced in the GST bills by the Lok Sabha on March 27, 2017, have had a significant impact on businesses in India. The changes are aimed at simplifying the tax regime and making it more business-friendly. Small and medium-sized businesses and startup founders in India need to be aware of these changes and their implications to ensure compliance and avoid penalties.
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