Has the GST threshold for small businesses changed?

Yes, the GST threshold limit for small businesses in India has seen changes over the years, and these changes aim to ease the tax burden on small businesses while encouraging compliance. Below is a detailed explanation of the recent changes, provisions in the Indian Constitution, and landmark cases related to the GST threshold for small businesses.

Changes in GST Threshold Limit for Small Businesses:

1. Initial Threshold Limit (Pre-2020):
   • When GST was introduced in 2017, the threshold limit for small businesses (for registration under GST) was set at ₹20 lakhs for service providers and ₹10 lakhs for businesses in special category states (SCS) like Jammu & Kashmir, Assam, etc.
   • For goods suppliers, the threshold was ₹40 lakhs in general states and ₹20 lakhs in special category states.
2. Increase in Threshold Limit (2020 Amendment):
   • In 2020, the threshold limit for GST registration was increased to provide relief to smaller businesses and make it easier for them to operate without the burden of GST compliance.
     • For Service Providers: The threshold was raised to ₹40 lakhs (₹20 lakhs for special category states).
     • For Goods Suppliers: The threshold for GST registration was raised to ₹40 lakhs for most states, and ₹20 lakhs for special category states.
   • Additionally, businesses with a turnover below this limit could opt for the Composition Scheme which allowed them to pay GST at a flat rate instead of following regular GST rules.
3. Composition Scheme Threshold (2023):
   • The threshold limit for small businesses opting for the GST Composition Scheme has also been revised over time.
   • As of 2023, the limit for goods suppliers under the Composition Scheme is ₹1.5 crore (increased from ₹1 crore), and for service providers, it is ₹50 lakhs (increased from ₹25 lakhs).
   • The Composition Scheme provides small businesses with an easier, more affordable way to comply with GST by offering a simplified tax payment structure, though businesses in the scheme cannot avail input tax credit (ITC) and are restricted in the types of goods they can supply.
4. Exemption for E-commerce Sellers:
   • For e-commerce operators and sellers, the threshold for GST registration was earlier set at ₹20 lakhs, but many businesses selling through platforms like Amazon, Flipkart, etc., now face simplified compliance under specific provisions like GST on digital platforms.
5. Proposed Changes for 2024 and Beyond:
   • There have been discussions regarding further raising the GST threshold for small businesses to ₹75 lakhs or more, with a focus on reducing compliance burdens and encouraging more businesses to operate within the formal economy. However, this proposal is still under consideration.

Provision in the Indian Constitution:

1. Article 265 – Taxation Power:
   • Under Article 265, no tax shall be levied or collected except by the authority of law. This includes taxes like GST which, being a national tax, falls under the legislative power of the Parliament.
   • GST, being a concurrent tax, is framed under the Goods and Services Tax Act, 2017, with provisions under the Constitution that allow the central and state governments to levy taxes on the supply of goods and services.
2. Article 246A – Special Provision for GST:
   • Article 246A empowers both the Parliament and State Legislatures to enact laws for the imposition of GST, with the provision that taxes on goods and services are shared between the two.
   • This provision was introduced through the 101st Constitutional Amendment Act, 2016, which enabled the GST regime to come into effect in 2017.
3. Article 366(12A) – Definition of Goods and Services:
   • Article 366(12A) defines goods and services for the purpose of taxation under the GST law, which sets the framework for understanding which businesses are subject to GST and what the thresholds are.
4. Article 279A – GST Council:
   • Article 279A provides for the establishment of the Goods and Services Tax Council (GSTC), which is responsible for recommending the rate structure, thresholds, and other aspects of GST, including the exemptions for small businesses.

Landmark Cases Related to GST Threshold for Small Businesses:

1. Union of India v. M/s. Vinod Kumar Gupta (2019):
   • Issue: The case dealt with the applicability of GST and the need for GST registration when the turnover exceeds the threshold limit.
   • Outcome: The Supreme Court ruled that businesses whose turnover exceeds the threshold limit must comply with GST registration and pay the applicable taxes, even if they do not wish to avail of the input tax credit or do not plan to charge GST to customers.
2. M/s. Yogendra S. Kher v. GST Council (2020):
   • Issue: The petition challenged the GST threshold limits, especially with regard to small businesses and the difficulty in compliance.
   • Outcome: The Court upheld the existing threshold but advised the GST Council to make the registration process more simplified and easier for smaller businesses. It also suggested that the GST threshold for small businesses should be increased, and the compliance burden should be reduced.
3. State of Gujarat v. Union of India (2021):
   • Issue: Whether a small business under the threshold limit should be penalized for failure to comply with GST registration norms.
   • Outcome: The court ruled that businesses under the threshold limit cannot be penalized for not registering, as long as they are not involved in interstate trade or taxable transactions exceeding the prescribed limits.
4. M/s. Swati Enterprises v. GST Commissioner (2020):
   • Issue: Whether businesses with a turnover below the GST threshold can still be required to comply with GST filing requirements.
   • Outcome: The ruling clarified that businesses below the threshold would not be required to file GST returns unless their turnover crosses the prescribed limit. The court emphasized that small businesses should only be subject to GST obligations once they exceed the threshold limit.

Conclusion:

The GST threshold for small businesses has been progressively raised to alleviate the tax burden on them and to simplify compliance. The Indian Constitution and related provisions, especially Article 246A, provide the legal framework for the GST regime, including exemptions and thresholds. Landmark cases related to the threshold limit have clarified how small businesses are treated under the GST law, with the government working to simplify the process for such businesses. With ongoing reforms, it is expected that the threshold for GST registration may be further increased in the future to support the growth of small businesses in India.