There’s good news for SMEs in India. If you felt the GST rules were not favourable, and the rollout was hasty and unplanned, you’re in for a delightful treat now. In the GST Council Meet held in October, the Finance Ministry has eased the burden of GST on SMEs in India.
So, what do the revised GST rules mean for SMEs? Read on to know.
- Quarterly Returns
The earlier mandate of filing returns every month was going to put a lot of pressure on the entrepreneur. With the changed rules, SME owners can breathe a sigh of relief.
If you are an entrepreneur and your annual turnover clocks at less than Rs 1.5 crore, then you can file quarterly tax returns instead of monthly returns. This means less bookkeeping when you look for business funding.
- GST Rates Cut On 27 Items
Three months after the new tax system was rolled out, the government has decided to cut the GST rate for 27 commonly-used items. This alleviates the complex tax structure that has been in place since July of this year and aims to reduce the burden for SMEs.
- Input Tax Credit Refund
Exporters can expect to get a refund on their input tax credit for the months of July and August. What is Input Tax Credit, you might ask. At the time of paying tax on your final product, you can deduct the amount of tax already paid on input, and pay just the remaining sum.
This is how it works:
When you purchase inventory or raw material from a supplier, you pay tax on the purchase. When you sell your finished good to your customers, you collect tax from them. While filing your returns, you adjust the tax already paid at purchase against the tax collected on sales, and only pay the balance as your tax liability.
Let’s make it clearer:
Tax payable on output (final product) = Rs 500
Tax paid on input (purchase) = Rs 350
You are eligible to claim Input Tax Credit (ITC) of Rs 350 and only pay Rs 150 in taxes.
Exporters can expect to collect arrears from the government on the tax paid in July and August, against this rule. This makes for a nice little amount that can be used for business funding.
- Tax Credits
There was no tax payable at the time of exporting goods before GST was implemented. Since July 2017, however, exporters had to pay duties, which they can now claim as refund. For future ease of business, the government is launching an e-wallet scheme which will provide exporters with notional tax credits that they can use at the time of procuring goods. These credits will be adjusted against tax to be paid, thus relieving the exporter of a massive tax burden. A technology company will be hired to create the software required to put such a system in place, which is expected to be operational by April 2018.
- Higher Sales Threshold
GST has multiple slabs and tedious formalities, which can be time consuming for SMEs. With the launch of the ‘composition scheme’, SMEs can now pay GST at a fixed turnover rate. This can be availed of by any SME – traders, restaurants and manufacturers – whose turnover is under Rs 1.5 crore
Undoubtedly, GST has simplified taxation by bringing everyone under the umbrella of ‘One Nation, One Tax’. With these amendments, it becomes even better and easier to follow.