New Delhi: The Group of Ministers (GoM) set up to make Goods and Services Tax (GST) composition scheme more attractive has suggested lowering tax rates for manufacturers and restaurants under the plan to 1%. At present, while manufacturers pay GST at 2%, the rate for restaurants is 5%. Traders currently pay 1%.

The GoM headed by Assam Finance Minister Himanta Biswa Sarma has also suggested doing away with the tax rate distinction between AC and non-AC restaurants — those which are not covered under composition scheme — and tax them at 12%. It also suggested that a hotel that which has room tariff of more than Rs 7,500 should attract 18% tax rate.

The composition scheme is open for manufacturers, restaurants and traders whose turnover does not exceed Rs 1 crore. This threshold was earlier Rs 75 lakh and the GST Council earlier this month raised it to Rs 1 crore from 1 October.

With regard to traders, the GoM has suggested a two-pronged approach for taxation under the scheme. It suggested that traders who want to exclude the sale proceeds of tax-free items from its turnover, it can pay 1% GST. However, those traders who pay tax on total
turnover, the tax rate has been proposed at 0.5%. For example, suppose a trader deals in goods that are tax exempt as well as those that are taxable under the GST and has a turnover of Rs 1 crore. Of this, Rs 40 lakh turnover is from the sale of tax-exempt items and remaining Rs 60 lakh from taxable goods.

“The GoM decided that tax rates under the composition scheme for restaurants and manufacturers be lowered to 1%. For traders the ministerial group suggested two tax rates,” an official told PTI.

The GoM also recommended allowing businesses that are engaged in inter-State sale to avail the composition scheme, he added.

Around 15 lakh businesses have opted for the composition scheme, which allows them to pay taxes at a concessional rate and makes compliance easy, under the GST, which rolled out from 1 July. There are over 1 crore businesses registered under GST.

While a regular taxpayer has to pay taxes on a monthly basis, a composition supplier is required to file only one return and pay taxes on a quarterly basis. Also, a composition taxpayer is not required to keep detailed records that a normal taxpayer is supposed to

The GoM was set up earlier this month and was tasked with revisiting the tax structure of different categories of restaurants with the aim of rationalising or reducing the rates, apart from making composition scheme more attractive for businesses.

Currently, GST is levied at 12% on non-AC restaurants, while it is 18% for air-conditioned ones.

The other members of the GoM are Bihar Deputy Chief Minister Sushil Modi, Jammu and Kashmir Finance Minister Haseeb Drabu, Punjab Finance Minister Manpreet Singh Badal and Chhattisgarh Minister of Commercial Taxes Amar Agrawal.

The GoM has also suggested that manufacturers engaged in job works can be allowed to opt for composition scheme, the official added.