A ministerial panel working to make Goods and Services Tax (GST) composition scheme more attractive on Sunday suggested slashing tax rate to 1 per cent for manufacturers and restaurants, while advocating easier norms for traders opting for it.
Currently, manufacturers and restaurants with turnover of up to Rs 1 crore pay GST under composition scheme at 2 per cent and 5 per cent respectively.
The same for traders is 1 per cent. In its second meeting, the Group of Ministers, headed by Assam Finance Minister Himanta Biswa Sarma, on Sunday also suggested doing away with the tax rate distinction between AC and non-AC restaurants, those which are not covered under composition scheme, and tax them at 12 per cent with input credit.
Currently, GST is levied at 12 per cent on non-AC restaurants, while it is 18 per cent for AC ones.
It also suggested that eating out at hotels, which has room tariff of more than Rs 7,500, should attract an uniform 18 per cent tax rate instead of any separate category for 5-Star hotel.
The GST Council, chaired by Union Finance Minister Arun Jaitley and comprising his State counterparts, on November 10 in Guwahati is likely to take up the recommendations of the GoM, which was set up earlier this month.
With regard to traders, the GoM suggested two-pronged approach for taxation under the composition scheme.
It suggested that traders who want to exclude the sale proceeds of tax-free items from its turnover, it can pay 1 per cent GST. However, those traders who pay tax on total turnover, the tax rate has been proposed at 0.5 per cent.
For example, supposing a trader deals in goods which are tax exempt as well as those which are taxable under the GST and has a turnover of Rs 1 crore. Of this, Rs 40 lakh turnover is from sale of tax-exempt items and remaining Rs 60 lakh from taxable goods.
So, traders deciding to pay tax on total Rs 1 crore turnover can pay 0.5 per cent, while those wanting to pay tax on Rs 60 lakh can cough up 1 per cent GST.
“The GoM decided that tax rates under composition scheme for restaurants and manufacturers be lowered to 1 per cent. For traders the ministerial group suggested two tax rates,” an official said.
The GoM also recommended allowing businesses who are engaged in inter-State sale to avail the composition scheme, he added.
Around 15 lakh businesses opted for composition scheme, which allows them to pay taxes at a concessional rate and makes compliance easy under the GST, which rolled out from July 1. There are over 1 crore businesses registered under GST.
Composition scheme is open for manufacturers, restaurants and traders whose turnover does not exceed Rs 1 crore. This threshold was earlier Rs 75 lakh and the GST Council earlier this month raised it to Rs 1 crore from October 1.
While a regular taxpayer has to pay taxes on a monthly basis, a composition supplier is required to file only one return and pay taxes on a quarterly basis.
Also, a composition taxpayer is not required to keep detailed records that a normal taxpayer is supposed to maintain.
The other members of the GoM are Bihar Deputy Chief Minister Sushil Modi, Jammu and Kashmir Finance Minister Haseeb Drabu, Punjab Finance Minister Manpreet Singh Badal and Chhattisgarh Minister of Commercial Taxes Amar Agrawal.
The GoM has also suggested that manufacturers engaged in job works can be allowed to opt for composition scheme, the official added.