The GST has had a huge effect on Indian businesses since its adoption in 2017. Like any major reform, the new tax regime has not been without bugs. Fortunately, the rollout has been overseen by an advisory committee, the GST Council. This body has the task of:
– watching how different states and sectors of the economy are adapting to the GST
– recommending changes where appropriate.
As is to be expected in the first couple of years, the council has been busy with proposed changes. Some of these changes are relatively minor matters. While others have already had far-reaching effects on nearly every business on the subcontinent.
Recent Important GST Updates
For many business owners, the most welcome changes so far have been the rate slabs for various kinds of goods. Originally, the council set the maximum rate of 28% for over 200 items made and sold in India. In November 2017, at the council’s 23rd meeting, the delegates voted unanimously to reduce the rates on all but 50 of these items. Most of the unaffected goods still in the top tax slab are considered luxury items like cars and air conditioners. While many of the necessities of life have dropped by a hefty margin. Absolute necessities such as diabetic meal components and some medical supplies even had their effective rate reduced to nil.
Another change related to rates was practically a blessing for restaurants. Under the original scheme, the GST was unevenly applied to restaurants. GST rates were decided depending on how urban and tourism-oriented they were perceived to be. Restaurants in hotels and those with air-conditioning were presumed to be more profitable than traditional restaurants in rural areas. These rates have been normalised.
New Due Dates
Another change from the council, this time through the GSTN filing portal, was a temporary extension on filing deadlines for some taxpayers. This was a change brought more out of necessity than principle, as there were delays implementing the GSTN site. Under the GST’s original filing plan, businesses across India were assigned monthly filing dates. Your restaurant, for instance, might be given a due date of the 14th of every month. While the hotel you do business out of could be required to file on the 10th, the souvenir shop next door on the 23rd, and so on. These staggered dates were planned to
– reduce demand on the GSTN servers and
– prevent crashes caused by all the taxpayers in the country filing on the same day.
Naturally, there were bugs at first. And the catch was causing serious backups all along the line. That’s why the council voted to extend deadlines for companies filing the GSTR-1. Again, this was staggered. Where big businesses were required to file by Oct. 3, smaller companies had to do so until Oct. 10. While both of these filing periods have now passed, this is a typical example of the changes the council may roll out at any time. As part of this package, the council also voted to
– allow late amendments to form TRAN-1 for a limited time, and
– set up a Committee of Ministers to run the GSTN. That committee handles the delegated authority to set and extend deadlines.
Branded Goods Changes
Another big change is to move branded goods under a tighter framework for regulation. The issue has been the general avoidance of the 5% GST rate of branded goods by manufacturers that sell basic foodstuffs like flour and cereal grains. In many cases, these goods qualify for the 0% minimum tax slab.
But branded goods are taxed at the higher rate on the assumption that leading brands can handle the cost. This led to many brands suddenly becoming generic foodstuffs producers and consequently not paying their GST. The council moved to end this practice by decree.
It rolled out that items that were registered brands prior to May 15, 2017, must pay the 5% tax, regardless of any changes to their name or packaging since that time. This is likely to be a permanent change. And so far it’s worked well enough that other categories of goods might face similar correction if the council decides avoidance has become a major issue.
Changes for Handicrafts
Major relief has come for the makers of traditional handicrafts. Recognizing the limited resources available to village artisans, as well as the major differences between small shops and large manufacturers, the council has given small handicraft makers a permanent exemption from the GST. Going forward, makers of handicrafts, such as traditional vessels, clothing, and musical instruments, can buy materials and sell their finished goods without registering for the GST in their state. The cutoff here is fairly low, just INR 20 lakhs. But the move provides major relief for hardworking artisans who otherwise might be put in distress by even a small tax on their wares.
The GST rollout has been going smoothly for the most part, but some GST updates have been necessary along the way. The GST Council has been responsive to the need for adjustments during the transitional period. And many of the more positive changes are evidently here to stay.