With the arrival of new indirect taxation regime in India, it is believed that all the shortcomings of existing taxation structure can be easily eliminated. Currently, numerous small and medium sized firms claim that they are unable to compete with large players primarily because the taxation structure in India favors the multinational companies and large enterprises. Herein, the arrival of GST is certainly a great news for the businesses that have been operating at small scale. Additionally, GST laws also ensure that all the businesses that are having lower annual turnover are offered some strategic benefits. One among those is the concept related to GST exemption for small businesses.
What is GST exemption for small businesses?
According to the GST Act, all the businesses in India that have annual turnover below Rs. 20 crores would be exempt from the purview of GST. The government has even introduced the plan that the exemption limit for businesses in special category states, i.e., north-eastern states or hill area states would be Rs. 10 crores. It means that such businesses would be able to perform each and every commercial transaction without being much bothered about the compliance rating during GST era. The concept of good GST exemption for small business firms was primarily envisioned so as to allow small businesses compete with all the major players across the country, in an open market.
Why was the concept of GST exemption envisioned?
As discussed above, the concept of exemption was mainly envisioned to ensure numerous strategic advantages to small businesses in GST era. As mentioned above, small businesses always had this concern that the taxation framework of India made it quite difficult for them to survive. Therefore, the government decided to roll out the concept of GST exemption particularly to ensure that small businesses leverage some compelling benefits during the GST era. However, apart from this the government also knew that small businesses firms had to bear huge compliance costs. In order to ensure total compliance, small business firms had to hire skilled accounting professionals who can handle, manage, and monitor all the tasks associated with compliance. This actually became a sort of a financial burden for small businesses. They had to hire a skilled professional particularly for compliance related functions. If by any chance a small company fails to hire a skilled accounting professional, then it had to face the upshots related to non-compliance or poor compliance rating. It is so true that this framework exposed small businesses to a myriad of challenges, and therefore, the government decided to work out a plan focused on GST exemption for small business.
Apart from all the factors mentioned above, small businesses also had to maintain strategic bonds with numerous taxation authorities so as to maintain high compliance rating. This actually opened the door for harassment and corruption at the root level. Small businesses often had to pay extra money to ensure that the officials associated with tax departments do not harass them unnecessarily. Various small businesses have claimed that they even have paid more money than what they are liable to just to make sure that their commercial activities are not hampered owing to any sort of miscommunication with taxation authorities. This certainly made it difficult for such small enterprises to survive as well as to maintain high compliance rating. To put a curb on this, the legislative authorities and GST Council decided to roll out concept of GST exemption for small businesses. This would allow small businesses to perform every commercial activity in a transparent manner. More importantly, it would prevent such businesses in remote locations from the any sort of harassment.
In short, GST exemption for small business firms is a forward-looking strategy that would help all the small traders, enterprises, and businessmen leverage various benefits under GST regime quite efficiently.