The GST Council agreed on exemption thresholds and dual control over assessees on the second day of its first meeting on Friday.
The council also decided to subsume all cesses in the goods and services tax (GST) and discussed ways of compensating states.
The states and Centre agreed to keep entities with Rs 20 lakh annual turnover out of the GST, barring 11 northeastern and hill states, where the threshold will be Rs 10 lakh.
The Rs 20 lakh cut-off was arrived at after a debate on Thursday, in which states like Uttar Pradesh sought a Rs 10 lakh threshold, while others like Delhi sought Rs 25 lakh.
An agreement was also reached on the prickly issue of dual control, where the Centre agreed to grant states exclusive administrative control of assessees with annual turnover of up to Rs 1.5 crore in goods, while retaining exclusive control throughout in services.
“All decisions today by the GST Council were taken on the basis of consensus,” said Finance Minister Arun Jaitley, who chairs the council.
Central and state officials will have powers to assess entities with annual turnover above Rs 1.5 crore, in the case of goods.
A ‘cross-empowerment’ model is being discussed to ensure a taxpayer with an annual turnover above Rs 1.5 crore deals with only one authority for all taxes. Jaitley said there would be cross-examination either by officers from the Centre or state to avoid dual control.
“Which assessee is assessed by who will be decided on the basis of the risk assessment by the Centre and state. Whichever of the two authorities has a higher risk assessment will assess it,” Jaitley said.
Only five per cent of the cases would be audited under the GST regime, against 70-80 per cent by some states now, he said.
The Centre will train state officers to deal with service tax cases to allow them to administer assessees with annual turnover up to Rs 1.5 crore at some point in the future.
The next meeting of the council on September 30 will finalise rules on exemptions. The GST rate and slabs will be decided at a three-day meeting from October 17.
Alternatives were discussed for compensating states for any loss of revenue in the new tax regime. A state can be compensated if its revenue under GST falls short of the average tax earnings in the best three years out of the previous five. Secondly, of the five years, two outliers are left out and the average is taken. Thirdly, a base year can be set and a particular growth rate for tax revenue can be decided for all states.
“The methodology and formula for payment will be worked out in the next meetings,” Jaitley said.
The council also resolved that all cesses will be subsumed in the GST. “All items, including cess, will be included in the GST,” Jaitley said, adding the council was working on a draft compensation formula that could be adopted at the next meeting of the council on September 30.
The compounding tax threshold for traders has been set at Rs 50 lakh. Those with an annual turnover between Rs 20 lakh and Rs 50 lakh will have the option of paying a tax rate of one to two per cent instead of the full GST rate.
DELIVER THE GOODS
Major decisions taken at Friday’s meeting
Exemption from GST for annual turnover less than Rs 10 lakh for N-E, hill states
Exemption from GST for annual turnover less than Rs 20 lakh for rest of India
Annual turnover less than Rs 1.5 crore to be assessed by states, in case of goods
Annual turnover greater than Rs 1.5 crore to be assessed under dual control
Service tax assessees to be vetted by Centre, at present 1.1 million service taxpayers
- Base year of compensation to be 2015-16
September 30: To approve draft rules
- October 17-19: To decide rates and slabs