The Implication of GST under MSMEs

Rajdeep Saini

07 Nov, 2020

According to the Micro, Small and Medium Enterprise Development (MSMED) Act, 2006, the micro, small and medium enterprise is defined in accordance with annual revenue. As classified by the union government, Micro Enterprise is a business where the annual turnover does not exceed Rs 5 Crores; Small enterprise is  an enterprise whose yearly turnover exceeds Rs 5 Crores but not exceeds more than 75 Crores and at last medium enterprise whose yearly turnover  exceeds 75 Crores and not surpasses 250 Crores.

The MSME sector provides significant employment opportunities besides being the ground of breeding for skill development and entrepreneurship. The number of MSME is more than 30 million and the number of people they employ is around 100 million.

GST Registration under MSME

Every supplier, whether it is in the state or a union territory from where he makes the taxable supply on any services or goods if the supplier’s total income exceeds the prescribed amount of the exemption limit, then he will be compelled to be registered.  The threshold limit for the supply of goods is 40 lakh and the limit for the supply of services is 20 lakhs.

Voluntarily registration under MSME

An individual having combined turnover below the mentioned limit may get them registered voluntarily.

Total turnover under MSME

The total turnover means the total value of all the supplies which are taxable, exempt supplies, the export of services, and good and interstate supplies, of an individual having the same PAN card^[1] number.

Individual not liable for registration under MSME

There are many categories of the person which are not liable for registration:

1. Any individual who is involved in the business of supplying only non taxable services or goods under the provisions of GST.
2. Any person who is an agriculturalist.
3. Any person who is only involved in making taxable supplies of services or goods , the aggregate tax on which is liable to be paid on the basis of reserve charge by the beneficiary of such good.

Compulsory registration under MSME

There are many categories of the individual which are compulsory liable for registration:

1. Any person who is indulges in Intra state supply of goods which are taxable, if the total turnover is the financial years shall not exceed the exemption limit that is 40 lakhs.
2. Any person who is involved in the intra state supply of the services, if his total income dosed not surpass the exemption limit that is 20 lakh.

Composition levy scheme under MSME

The composition scheme in GST is a different substitute method to levy a tax on small and medium taxpayers whose total turnover is within the prescribed limits. This method of levying tax is quite a hassle-free and simple scheme for the small taxpayers. It is an optional and voluntary scheme.

Features of this scheme:

1. A registered taxable person whose total income is does not exceed Rs. 1.5 Crore, as a goods supplier.
2. In the cases of supply of service only with a yearly turnover of more than 50 lakhs may opt for this composition scheme and the rate of GST which will be applicable would be 6% only.
3. Any tobacco manufacture, pan masala, ice cream cannot opt for this scheme of GST composition.
4. If a taxpayer is registered under the composition levy scheme then the taxpayer has to pay a certain amount equal to a fixed percentage as a tax to the government.

The rate of tax under this composition levy scheme:

• 1% of the turnover in the union territory and state, for eligible manufacture.
• 1% of the turnover in the union territory and state, for eligible traders.
• 6% of the turnover in the union territory and state, for eligible contract work services and restaurant services.
• 6% of the turnover in the union territory and state, for suppliers who are dealing in only services or the services and goods together.
• The payment of tax is to be made on a quarterly basis. These tax payers are not liable to maintain detailed records or accounts. Instead only two monthly returns and statements are required to be filled. Under this scheme, taxpayers need to pay the taxes on four month basis and only one return has to be filled annually.
• Any taxable person who is picking this scheme has to issue a bill of the supply and with that he has to mentioned the words “composition taxable person not eligible to collect tax on supplies” at the upper area of every invoice of supply issued by the tax payer under this scheme.

Input Tax Credit under MSME

After the GST, every registered person is permitted to take credit on the tax input charged on any supply of services or goods to him, intended or used in furtherance or course of business. The beneficiary must be at liberty to avail the tax credit of input tax on the payments made by them on the amounts towards the value of inward supply of services and goods with tax payable. Though, a composition taxpayer is not entitled to avail input tax credit.

There are some exceptional provisions for accessibility of the credit in some special conditions  like new registrations, shifting from normal levy to composition levy vice versa, exempted supplies becoming taxable and vice versa. These conditions help the MSMEs whenever they shift from the exempted or composition category.

Conclusion

Read our article:Input Tax Credit on Job Work