CRISIL SME Tracker: A GST leg-up for micro enterprises

The interim Budget 2019-20 has proposed several measures aimed at micro enterprises, which account for more than 99 per cent of India’s micro, small and medium enterprise (MSME) universe.

Among other things, it doubled the limit for exemption from Goods and Services Tax (GST) to Rs 40 lakh, from Rs 20 lakh.

It also proposed an attractive composition scheme for small businesses having a turnover of up to Rs 1.5 crore, wherein these can pay only a one per cent flat rate and file only one annual return. Similarly, small service providers with a turnover of up to Rs 50 lakh can now opt for the composition scheme and pay GST at six per cent instead of 18 per cent. 

The government believes more than 35 lakh small traders, manufacturers and service providers will benefit from these measures.

The government also announced that businesses with a turnover of less than Rs 5 crore — comprising over 90 per cent of GST payers — will soon be allowed to file quarterly returns, as against only annual returns right now. 

CRISIL’s interactions with a few micro enterprises indicate that the increase in the exemption limit will ease the compliance burden of these players. The move to allow filing of quarterly returns, too, will help save on cost and time.  

Micro enterprises also stand to benefit from the full tax rebate to middle-class taxpayers and small proprietary enterprises for an income of up to Rs 5 lakh. As per the National Sample Survey on MSMEs, 73rd Round (2015-16), 96 per cent of MSMEs are proprietary concerns, and the bulk of these are micro enterprises.

That being said, opting for the composition scheme may offer only limited benefit, considering these entities will have to forgo some incentives related to GST registration.