Made With Love: The Current Situation Of GST Rates For Handmade Products In India
GST implementation brought in a slew of taxation reforms in the handmade products category. The handmade products industry has been badly affected due to the current tax regime. Sales dropped 6% in fiscal 2017-18, a historic decline witnessed for the first time in 10 years.
This created an urgent need for reform in the taxation structure to help the handicrafts sector gain momentum. Moreover, the GST council was forced to figure out a way to provide tax and compliance relief to small businesses in the sector.
Since then, numerous changes in the taxation structure have bolstered the handmade product industry, thereby helping businesses reduce the significant tax burden.
Tax Rates Before GST
In the earlier VAT regime, the handmade goods industry was tax exempted in 8 states and a 5% VAT was levied in 15 states. Under GST, these rates were revised to 12% and 18%. This created unrest in the handmade products industry as businesses and vendors now had to pay increased taxes on their products and also adhere to increased compliance.
Before GST, handmade products were also subject to a host of other taxes in addition to VAT such as service tax, sales tax, etc. and with the implementation of GST, all of these taxes were unified in a single tax.
As such, the handicraft industry strongly disagreed with the new system and argued that all the handmade products need to be GST free. If that is not possible, the next suggestion is to assign the 5% tax slab to the products if the government wants to achieve a seamless growth pattern in the industry.
Let’s have a look at the recent changes made by the GST council that affect the handmade goods industry.
Recent Changes In GST Rates On Handmade Products
The few state governments were vying the GST council to provide tax exemptions in the handmade products category, and 29 handmade products were brought under the 0% tax slab. Handmade products are predominantly produced by MSMEs. This step is expected to help them to achieve a better value proposition for their business.
The changes targeted the handmade products industry and its vendors in ensuring business stability and providing further growth capital. There is an average export of INR 4000 worth of handmade products, including handmade carpets. The GST council had mandated vendors and businesses to apply the revised tax rates from January 25th.
Industries producing handmade products were reeling under the pressure of GST, and the 0% tax slab has brought in the much-needed relief. The Gram Seva Sangh led the charge for the reform and submitted a petition to the Karnataka government seeking the tax exemption. Various high profile dignitaries also met the government officials to highlight the need for protecting the handmade products industry.
GST Composition Scheme
The gst composition scheme allows small businesses with turnovers between INR 50 Lakh to 1.5 Cr. to pay a percentage of their yearly turnover instead of paying regular GST. Small-scale enterprises also have the flexibility of filing a quarterly return instead of the monthly filings. This helps small businesses in ensuring a hassle-free tax filing experience and ensuring tax compliance.
The handmade product industries are predominantly small or medium-sized ventures with turnovers between the specified range. This enables the businesses to have more cash at hand and ensure slightly lesser compliance than their bigger counterparts.
Disadvantages of the GST Composition Scheme
The disadvantages for a business opting the GST composition scheme are:
- The dealer is barred from interstate transactions.
- There would be no provision to avail the input tax credit.
- The business is not allowed to sell exempt products through online channels or an e-commerce portal.
GST implementation has been the largest tax reform in India. For a change of this scale, it’s imperative that there would be numerous revisions in gst rates in india. Progressive reforms such as bringing handmade products in the 0% tax category will further help to strengthen the industry.
Furthermore, it is expected that there may be more revisions in the future as per the industry’s reaction. The sector has already witnessed its fair share of tax complications and moving further, GST aims at building a feasible but robust taxation system for handmade products industry in India.