Is There Any Concept of Area-Based Exemption Under GST?

Introduction to GST (Goods and Services Tax)

The GST (Goods and Services Tax) can be considered to be a kind of Value-added tax that is applied to goods and services only difference being that GST is a taxation system that the government had implemented in order to unify all the different kinds of tax. The GST regime in India was implemented on 29th March 2017 and it came under full force on 1st July 2017.

Understanding Area-Based Exemption

There is no such Area-based exemption under the current GST regime in the nation. It means that the GST rate applicable to the services and goods is uniform across the nation despite the location where the manufacturing and production of the goods and services have been done. Hence, there has been a pretty huge end of such exemptions that had been in abundance in the previous system of indirect and direct taxation system. The scheme encircling ABE offered certain exemptions from the excise duty to the manufacturing arm established in the areas that are used to promote industrial growth as well as employment in those areas. After the GST had been introduced in 2017 the government had tried to create the unified national market where a single tax rate is applicable across the entire nation. Therefore, this eliminated the requirement of an ABE as it ensured every business that there is a same level of playing field in order to conduct business in different parts of the nation.

Eligibility Criteria for Area-Based Exemptions

The eligibility criteria for the ABE is based on the previous implications based on the excise duty regime where the concept of ABE implied to the eligibility of exemptions from excise duty to the manufacturing arm of the companies in order to improve the overall growth and employment of the industry in different areas.

The eligibility thus entailed the requirement of meeting criteria of location, capacity of production, investment offered, and type of product that is being manufactured. In order to understand whether one is able to avail of the ABE tax professionals had to be consulted in order to understand the current status of the taxpayer as well as the benefits remaining under the GST. Also, ensure that the legal compliance in terms of GST regulations has been fulfilled.

Now, acknowledging the fact that there is no ABE under the GST even then there are provisions that will provide relief to different business sectors. A few of the exemptions are discussed here under and it will be discussed in detail in the latter half of the article:

• Composition scheme: The businesses that are smaller and have a turnover of up to Rs 40,000,000 can opt for the scheme of composition that will allow the business to pay a rate of GST that is fixed on the turnover instead of a regular rate of GST on supplies made individually is being applied.
• Nil-rated and exempt goods: Certain kinds of goods include agricultural products, fruits and vegetables, as well as unbranded items of food, and other products that are either nil-rated or have been exempted from the GST altogether,
• SEZ: SEZs or Special Economic Zones are being supplied with goods and services that are exempted under the GST regime.

Benefits and Impact of Area-Based Exemptions

Although area-based exemptions are not being used under the current GST regime of India. However, it is important to understand the benefits and impact of such exemptions as it might affect the policymakers as well as the businesses in general.

Benefits:

• Economic development: the areas have been provided to encourage growth among different industries as well as promote employment in areas that are advantageous positions or could be stated to be underdeveloped. In doing so, it might also reduce some tax burden and create better infrastructure development.
• Level playing field: Exemptions address the disparity among different regions in the field of accessing the infrastructure. They were lowering the cost of compliance and market. This exemptions will reach the gap between the backward regions with the developed ones.
• Social upliftment: Economic activity in areas that a list developed due to such assumptions will lead to improvement in certain living standards reduction in poverty as well as access to better education and healthcare.

Impacts:

1. Fiscal cost: The government deteriorated due to the excess duty laws from the exempted units. This could affect public spending on critical services in different areas.
2. Distorting the competition: These area-based exemptions have also created a disparity within businesses that do not fall under this area where exemptions are applicable, thereby hindering the efficiency of the market as well as restricting innovation.
3. Complexity in administration: Implementation and monitoring, of such exemptions will be gruesome tasks for the administration which includes the tax authorities as well as the different verification mechanisms that will be used to prevent the miss use
4. Concerns within sustainability: these exemptions will often be criticised to be a hog and those lack certain exit strategies. Reliance on such exemptions will thereby discourage economic development in the long-term that is based on intrinsic competitiveness.

Challenges and Criticisms

Challenges:

1. Although the government has made efforts to simplify such exemptions, even then the exemptions will remain as complicated as they could be. The complications are mainly for businesses that are small and medium enterprises and for companies that have dual nature of business activities and such laws and regulations will also create regulatory problems for different changes that the government has meant.
2. The burden with compliance: there is a requirement to file the returns and keep the different records on a regular. This is which could be in some different companies and the companies that have very limited resources mostly face the difficulties.
3. In order to implement these changes government will have to spend more on technological infrastructure that will help to solve connectivity issues among different regions. There could be problems in those areas.

Criticism:

1. There are different lives the 28% and 18% GST rates have been considered to be high in terms, of goods and services that will lead to an increase in consumer prices and might create inflation pressure.
2. The mechanism of an income tax credit might not be able to fully upset the different access to be paid on inputs that will lead to an effect on taxation that will increase the cost of good services ultimately.
3. The government has faced a fall in revenue due to certain exemptions as well as a significant drop in the rate of tax that will also impact the public pending on services.
4. Due to the area exemptions, certain changes take frequently. Hence this changes the business operation operations of different organisations, thereby creating some chaos.
5. The tax system as such has created problems in the informal sector that have resulted in the loss of jobs and created challenges among the micro businesses.

Recent Updates and Amendments

There have been several amendments and updates on the GST reason of the nation. Some of the recent updates and amendments are discussed here:

1. The taxable threshold for the composition scheme has been increased. Businesses that have a turnover of up to 40 lakhs will now be able to seek the composition scheme. It must be kept in mind that for the north-eastern states and Himachal Pradesh turnover is up to 20 lakhs.
2. The time limit for filing the GSTR-9 has been extended to 31st December of the subsequent years. In doing so, the different businesses will be able to file the GSTR-9 easily thereby ensuring that accuracy has been maintained.
3. The suppliers were unregistered and composition tax will now be able to make interest supply of goods through the ECOs or e-commerce operators under conditions that have been laid out.
4. The GST portal has been improved and one can now pay tax in a simplified manner for businesses as well as individuals.
5. The businesses can amend and rectify the returns, as well as issue the credit notes until 30th November November of the following end of the financial year
6. The mechanism for reversing and re-availing of the input tax credit has been introduced which has made the suppliers not pay tax.
7. The government has been talking about the inclusion of artificial intelligence as well as data analytics to combat the increasing GST.

Understanding GST Exemptions in Different Industries

Agriculture and allied industries:

Exemptions has been made most of the unprocessed agriculture goods such as vegetables, milk, grains, fruits, eggs as well as honey. The processed agricultural goods such as flour, jaggery and Atta will have a 0% rate of GST. Such as frozen meat, fish as well as vegetables will attract a 5% rate of GST.

Also Read: GST And The Agriculture Sector

Healthcare and education:

The schools and colleges as well as the hospitals and clinics have been exempted from the GST. Educational aids in the form of books, charts and maths will have a 0% rate of CST. There are certain healthcare services such as cosmetic surgery as well as some kind of diagnostic tests that will attract only a 5% rate of GST.

Also Read: GST And The Healthcare Sector

Financial services:

Most of the banking and financial services such as credit cards, loans as well as insurance are from the GST. Services such as extension transactions as well as life insurance will have a 0% GST rate. Some of the financial services such as a collection of credit repair will attract an 18% rate of GST.

Hospitality and tourism:

The hotels and lodges that provide accommodation will have exemptions from GST below a certain rate of tariff. The accommodation that will exceed the tariff will attract a 5% rate of GST. Restaurant services provided by hotels as well as travel agencies and certain other services will collect an 18% rate of GST.

IT and software industry:

Digital downloaded software is exempted from GST and certain services such as e-commerce fees, data processing as well as Internet access will attract 25% of GST. Certain customise software development, sale and hardware as well as IT consultancy will collect 18% GST.

Conclusion

The goal of implementing GST in India was to simplify the complexities of taxation in the market thereby uniting the market. Although it streamlined certain activities, it introduced certain challenges as well, which also created some complexities around the situation. Certain updates and dates have been made to improve the integration of the taxation system in the market. However, there is a huge bandwidth of growth that is expected out of the government which will improve the GST raging in the nation further.

Also Read: GST: Everything You Need To Know

FAQs

• What is GST?

GST is an acronym for goods and service tax which is a kind of unification of different kinds of taxes that were being charged in India previously. It has been implemented in order to simplify the national taxation system.

• Is the registration for GST required by every business?

No, only the businesses that have an annual turnover of less than 40 lakhs can opt out of the composition scheme which is a simple procedure.

• What are the different rates of GST in India?

The five main rates of GST are 0%, 5%, 12%, 18%, and 28%.

• How can I file my GST returns?

The government of India has a separate GST portal where you can go and file your GST Return.

• Is there any kind of area-based exemptions under the GST?

No, there are no area-based exemptions under the current GST regime which was once applicable under the previous taxation system.

Arghyadeep Bose Equity Research Associate

I am a passionate writer with a deep understanding of the financial world. I believe in making complex financial concepts accessible and engaging for everyone. With my corporate experience and love for storytelling, I craft compelling narratives that educate and inspire. I am always looking for ways to bridge the gap between finance and creativity, and I am excited to share my insights with the world.

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