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Writer's pictureRashmita Choudhary

GST Exemption Limit Explained: Turnover Thresholds, Special Provisions

GST Exemption Limit Explained: Turnover Thresholds, Special Provisions

When it comes to GST exemption limits, understanding the turnover thresholds is crucial for your business's compliance and growth. You might be aware that regular states have a threshold of ₹40 lakhs for goods and ₹20 lakhs for services, but what about the special provisions in states like Assam and Jammu & Kashmir? These nuances can greatly impact your registration requirements and financial planning. Let's explore how these limits work and what special considerations you need to keep in mind to guarantee you're not missing out on critical compliance details.

 

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GST Exemption Limit

The GST exemption limit helps businesses know when they must register for GST based on how much money they make each year. This limit is different for goods and services. In regular states, the limit is ₹40 lakhs for goods and ₹20 lakhs for services. In special states, the limits are lower: ₹20 lakhs for goods and ₹10 lakhs for services.

Knowing these limits is important for small businesses, especially in less developed areas. If a business makes more money than the limit, it must register for GST. This helps the business follow the law and can also provide benefits like getting back some taxes paid.

Businesses should check their annual sales often to stay compliant and avoid fines. By keeping track of sales, they can make smart choices about running their business and planning finances.


Updated GST Exemption Limits for Goods and Services (Effective from April 1, 2019)

As of April 1, 2019, the GST exemption limits for suppliers of goods have changed. The government wants to make it easier for businesses to operate. Now, in most states, the limit is set at ₹40 lakhs. For special category states, the limit stays at ₹20 lakhs. The exemption limits for services have not changed. They remain at ₹20 lakhs for normal category states and ₹10 lakhs for special category states.

Here's a simple comparison of the updated GST exemption limits:

Category

Normal Category States

Special Category States

Goods

₹40 lakhs

₹20 lakhs

Services

₹20 lakhs

₹10 lakhs

These updates are important for GST registration. Now, businesses can earn more money before they need to register. It is crucial for businesses to know these limits. If they earn more than these limits, they must follow GST rules. By understanding these limits, businesses can make better choices and avoid problems with GST registration.


Classification of States for the Applicability of New GST Turnover Limits

In India, the GST turnover limits vary based on the state where the business is located. These limits decide whether a business must register for GST or can stay exempt. States are classified into two main categories: normal states and special category states.

For normal states, the GST exemption limit is ₹40 lakhs for goods. This means businesses with an annual turnover of less than ₹40 lakhs do not need to register for GST. For services, the limit is ₹20 lakhs.

For special category states, the GST exemption limit is lower. The exemption limit for goods is ₹20 lakhs, while for services, it is ₹10 lakhs. Special category states include northeastern states like Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, and Uttarakhand, as well as the union territories.

Understanding which category a state falls into helps businesses know if they need to register for GST or if they are exempt. This helps avoid any confusion and ensures compliance with GST rules.


Special Provisions for Special Category States

Special Category States have special rules. These states have different economic situations. Because of this, they've lowered GST exemption limits. For example, in Assam and Jammu & Kashmir, the limit for goods is ₹20 lakhs, and for services, it's ₹10 lakhs. This helps small businesses that face more challenges in these areas.

In the northeastern states, the government wants to help local businesses. They let these businesses have fewer rules to follow. While most states raised their limit for goods to ₹40 lakhs, Assam and Jammu & Kashmir kept it at ₹20 lakhs. This shows a custom approach for their specific needs.

These special rules help local businesses grow. They allow them to compete better while dealing with their unique problems. By knowing these special rules, one can plan their business better and follow the laws in their state.


GST Exemption Limit for the GST Composition Scheme

The GST Composition Scheme is a simpler tax system for small businesses. It allows businesses to pay a fixed percentage of their turnover as tax instead of the usual GST rates. The exemption limit for the GST Composition Scheme is different from the regular GST registration limits.

For businesses dealing in goods, the turnover limit to join the Composition Scheme is ₹1.5 crore. This means if a business's annual turnover is less than ₹1.5 crore, they can choose to register under the Composition Scheme and enjoy its benefits. For service providers, the turnover limit is ₹50 lakhs.

This scheme is designed to make tax compliance easier for small businesses, reducing their paperwork and allowing them to pay a lower, fixed tax. However, businesses under the Composition Scheme cannot claim Input Tax Credit (ITC), and they also need to clearly mention on their invoices that they are part of the Composition Scheme.

Understanding this limit helps small businesses decide if they should opt for the Composition Scheme and benefit from simpler tax rules.


Mandatory GST Registration: Categories That Must Register Irrespective of Turnover

Some businesses must register for GST, no matter how much money they make. This includes interstate suppliers, e-commerce operators, non-resident taxable persons, and businesses using reverse-charge supplies.

Interstate suppliers must register because they sell goods across state borders. This helps them follow the rules in different states.

E-commerce operators also need to register because they're a big part of online shopping. They must follow special rules for online sales set by GST.

Non-resident taxable persons must register if they do business in India but don't have a permanent office here. This helps them keep track of their taxes.

Lastly, businesses that deal with reverse charge supplies must register too. In these cases, they've to pay the tax instead of the supplier.


How to Determine if Your Business Meets the GST Threshold?

To know if your business meets the GST threshold, you need to check your annual turnover. The GST exemption limit is ₹40 lakhs for goods in normal states and ₹20 lakhs for special category states. For service providers, the limit is ₹20 lakhs in normal states and ₹10 lakhs in special category states.

To determine if your business meets the threshold, follow these steps:

  1. Calculate Your Total Sales: Add up all your sales over the last 12 months. Include both goods and services.

  2. Check the Exemption Limits: Compare your turnover to the exemption limits for your state. If your turnover is below the limit, you do not need to register for GST.

  3. Consider the Type of Business: If you provide both goods and services, make sure to check the separate limits for each. Goods and services have different thresholds.

If your business exceeds the GST threshold, you must register for GST and start charging GST on your sales. This helps you stay compliant with tax rules and avoid penalties.


How to Calculate Aggregate Turnover for GST Registration

To find out if someone can register for GST, they need to calculate their aggregate turnover. Aggregate turnover means the total value of all taxable supplies, exempt supplies, exports, and inter-state supplies made under the same PAN in all states. This calculation is important because it helps them see if they meet the turnover limits for registration.

When calculating turnover, they shouldn't include any taxes like CGST and SGST. They also shouldn't include the value of supplies made under the reverse charge method.

The formula for aggregate turnover is:

Aggregate Turnover = Taxable Supplies + Exempt Supplies + Exports + Inter-State Supplies

For example, if someone made ₹30 lakhs in taxable supplies, ₹5 lakhs in exempt supplies, ₹10 lakhs in exports, and ₹2 lakhs in inter-state supplies, their aggregate turnover would be ₹47 lakhs.


Examples: Determining Eligibility for GST Exemption

Calculating your aggregate turnover is important to see if you can get a GST exemption. Knowing the rules for exemption helps you decide if you need to register for GST based on how much money your business makes.

Here are two examples to help explain:

Type

Turnover

Trader in Delhi

₹35 lakhs

Service Provider in Assam

₹9 lakhs

In the first example, the trader in Delhi has a turnover of ₹35 lakhs. This amount is less than the ₹40 lakh limit for goods. So, they do not need to register for GST. If their turnover goes over ₹40 lakhs, they must register for GST.

In the second example, the service provider in Assam has a turnover of ₹9 lakhs. This is below the ₹10 lakhs limit for services. They do not have to register for GST until their turnover goes above this limit.

In both cases, it is important to keep track of your aggregate turnover. This helps you understand when you need to register for GST.


Conclusion: Understanding GST Exemption and Staying Compliant

Understanding GST exemption limits is important for small businesses. These limits help them follow the rules and avoid problems with tax authorities. By knowing the turnover thresholds, businesses can see if they can benefit from exemptions.

It's crucial to know when to register for GST. If a business waits too long, it might face penalties.

Small businesses need to use good GST compliance strategies. This means they should calculate their total earnings correctly and know the specific limits for their type of business and location. Staying within exemption limits can help small businesses focus on growing without worrying about extra taxes.

Using resources like TaxBuddy can help businesses understand GST rules better. They can provide guidance on the details of GST laws and help businesses keep their records straight.

Staying informed about GST exemption limits protects businesses and helps them succeed in a tough market.


FAQ

Q1. What is the GST exemption limit?

The GST exemption limit is the yearly amount a business can earn before they must register for GST.


Q2. What is the GST exemption limit for goods in regular states?

For goods in regular states, the GST exemption limit is ₹40 lakhs.


Q3. What is the GST exemption limit for services in regular states?

For services in regular states, the GST exemption limit is ₹20 lakhs.


Q4. What are the GST exemption limits for special category states?

In special category states, the GST exemption limit is ₹20 lakhs for goods and ₹10 lakhs for services.


Q5. Who must register for GST no matter their turnover?

Interstate suppliers, e-commerce operators, non-resident taxable persons, and those using reverse-charge supplies must register for GST, no matter how much they earn.


Q6. How do you calculate aggregate turnover for GST registration?

Aggregate turnover is the total of taxable supplies, exempt supplies, exports, and inter-state supplies.


Q7. What is the aggregate turnover formula?

Aggregate Turnover = Taxable Supplies + Exempt Supplies + Exports + Inter-State Supplies.


Q8. Can small businesses in Assam stay under the GST exemption limit?

Yes, small businesses in Assam must register for GST if their turnover goes over ₹20 lakhs for goods or ₹10 lakhs for services.


Q9. What happens if you earn more than the GST exemption limit?

If a business earns more than the GST exemption limit, it must register for GST and follow its rules.


Q10. Why is it important to know the GST exemption limits?

Knowing the GST exemption limits helps businesses avoid penalties and follow tax rules.


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