Applicability of Threshold Exemption

[Kaustubh Karandikar]

XYZ is having turnover in the financial year 18 - 19 above ₹ 20 Lacs and therefore paying GST. In the year 19 -20, he will be continuing to pay GST and if his turnover will be below ₹ 20 Lacs, will he be exempted from paying GST and claim refund of GST already paid in 19 -20 or otherwise how it works?

[Ganeshan Kalyani]

The threshold limit is applicable to register under GST Act. In the year of registration the tax shall be applied on the turnover in excess of the exemption limit. In the second year onward the tax is to be charged from the first supply itself.

[KASTURI SETHI]

Dear Sir,

The issue is to be examined deeply. The word, 'preceding ' before 'year' is missing in Section 22 of CGST Act, 2017. The word, 'preceding' used to be in every small scale exemption notification of Service Tax.

SECTION 22. Persons liable for registration. - (1) Every supplier shall be liable to be registered under this Act in the State or Union territory, other than special category States, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees :

Provided that where such person makes taxable supplies of goods or services or both from any of the special category States, he shall be liable to be registered if his aggregate turnover in a financial year exceeds ten lakh rupees.

From the above, your view appears to be correct. I expect views from experts.

[Ganeshan Kalyani]

In 18-19 , when the threshold exceeded the GSTIN was taken. Tax was paid above ₹ 20 lacs turnover. In 19-20 the GSTIN is existing and hence GST is applicable even if the turnover does not exceed the threshold in the year.

[DR.MARIAPPAN GOVINDARAJAN]

In my view there is no provision for cancelling the registration when the aggregate turnover reduces below the threshold limit.

[KASTURI SETHI]

Dr.Govindarajan Sir,

I agree with you to the extent that there is no provision for cancellation of registration because of reduction turnover below threshold limit.

In pre-GST era, there was a word,"Preceding" financial year in every small scale exemption notification of Service Tax. Now in GST regime, "preceding" is missing and replaced by "a financial year'. What is impact of this ? Will you please offer your views ?

Thanks & regards.

K.L.SETHI

[DR.MARIAPPAN GOVINDARAJAN]

I agree with you. The GST council is to bring clarification in this regard to avoid such confusions.

[Ganeshan Kalyani]

In my view, by the word a financial year it means the turnover of the current year also shall be considered in case the turnover in the preceeding year was below threshold .

[KASTURI SETHI]

Sh.Kalyani Ji, Where is the word, Preceding, which was earlier in every notification in pre-GST era. It is a flaw in the law. In such situation we cannot imply. It should be brought to the notice of GST Council.

[Ganeshan Kalyani]

The intention of the law maker is to cover both the year for the purpose of determining the threshold. However as you say there needs a clarification in the flaw law.

[KASTURI SETHI]

Intention of Govt. may be but we are discussing what law says. We must know the difference among the phrases, '' a financial year, the financial year and the preceding financial year".

[Siva Rama]

There is a rumour among experts in market that Law says about ₹ 20 lakhs threshold limit only registration purpose only. But not for paying tax. That is, If turnover for FY1718 is ₹ 21 lakhs, GST registration has to be taken on crossing 20 lakhs, but tax has to be paid on full 21 lakhs.

When contacted Helpdesk, they also said tax to be paid on 21 lakhs.

But I dont find any logic in paying tax on full 21 lakhs when any registration is not required upto 20 lakhs in FY1718.

Experts view awaited.

Regards,

Siva

[Padmanathan KV]

THIS QUESTION IS VERY RELEVANT. SEC 22. PRESCRIBES THE TURNOVER LIMIT FOR REGISTRATION. BUT I COULD NOT FIND ANY SECTION WHICH GRANTS THE BASIC EXEMPTION OF RS.20 LAKHS. IN KERALA VALUE ADDED TAX ACT SEC.6 PROVIDES THE BASIC EXEMPTION LIMIT AND A PERSON BECOMES LIABLE TO PAY TAX, ONCE THIS LIMIT IS EXCEEDED. SUCH A PROVISION IS ABSENT IN CGST ACT. IS IT ACCIDENTAL OR PURPOSEFUL? AS SIVA OPINES, ONE LI LIABLE TO PAY GST WITHOUT ANY EXEMPTION!

[KASTURI SETHI]

See Board's Flyer No.1. Any person is required to apply for registration when that person is liable to pay tax. You are liable to pay tax after crossing ₹ 20 lakhs. Threshold exemption is substantive right. Tax is to be paid on ₹ 1 lakh (21 lakh - 20 lakh). When any person crosses threshold exemption limit, one is to apply for registration with in 30 days from the date of crossing exemption limit. None can deny threshold exemption limit of ₹ 20 lakhs if he fulfills all other conditions laid down for eligibility. This is legally wrong to say that tax is to be paid on 21 lakhs. No doubt about.

[KASTURI SETHI]

It is neither the intention of legislature nor Govt. to deny threshold exemption of Rd.20 lakhs in the situation explained above.

[KASTURI SETHI]

Has any person received Show Cause Notice denying threshold exemption of ₹ 20 lakhs and demanding GST on ₹ 21 lakhs ? If so, email me. Any reader of this query should come forward and email me for clearing the air. Thus concept will be clear to all.

[V ALAGAPPAN]

Exemption is based on turnover of the previous year. Further during 19-20 he is colleting and remitting GST. hence no refund is eligible. However for 20-21 he may surrender Registration and need not collect or remit GST as the previous year (19-20) turnover is less than 20 lakhs

[rajkumar shukla]

Since 20 lakhs threshold is with respect to registration and not for payment of tax and since payment of tax is to be made by taxable person he will have to pay tax so long as he is registered under GST law. refund would have been possible only in case 20 lakh limit would have been in respect of tax, that too subject to unjust enrichment.

AI Summary

Threshold exemption governs GST registration, but registration continuity makes tax payable while registered and refunds unlikely.
Once aggregate turnover in a financial year exceeds the statutory threshold a person is liable to register and, having obtained registration, remains subject to GST so long as the GSTIN exists; registration is not automatically cancelled simply because turnover later falls below the threshold, refunds for tax remitted while registered are generally unavailable, and a person who crosses the threshold during a year must apply for registration within the prescribed period.