Central GST threshold likely at Rs 10 lakh

Businesses with more than Rs 10 lakh turnover may end up paying the central goods and services tax, with the Centre not agreeing to states' suggestion of keeping the threshold at Rs 1.5 crore.

The empowered committee of state finance ministers had suggested separate thresholds for central GST and state GST, wherein businesses below a gross annual turnover between Rs 1.5 crore and Rs 10 lakh would be subjected only to SGST, and not CGST.

The rationale behind the empowered committee's suggestion for different thresholds was to protect the "interests of small traders and small-scale industries, and to avoid dual control".

The government suggested compensating small businesses with turnover below Rs 1.5 crore by simplifying and reducing their paperwork, instead of keeping them out of CGST.

"It (the threshold) should be Rs 10 lakh for both Centre and states. We have suggested a simplified procedure for threshold below Rs 1.5 crore. They may not have to file returns frequently; registration process could be simplified; minimum audit could be prescribed for them based on risk parameters; and benefits under the compounding scheme could be extended," an official in the finance ministry told Business Standard.

The Centre is worried that a variance in threshold limit could change the revenue neutral rate and also lead to problems in collecting inter-state GST (IGST), which would be applied on inter-state transfer of goods and services.

"There is huge benefit in common threshold. It allows more effective monitoring. A threshold of Rs 1.5 crore will create distortions between the goods at the two sides of this level. The Rs 10 lakh cut-off is small, but if the threshold is as high as Rs 1.5 crore, it may lead to some companies underreporting their annual turnover," said Satya Poddar, partner, Ernst and Young.