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 per cent.
It also suggested that hotels which have room tariff of more than Rs 7,500 should attract 18 per cent tax rate.
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 October 1.
With regard to traders, the GoM 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 their turnover can pay 1 per cent GST. However, for those traders who pay tax on total turnover, the tax rate has been proposed at 0.5 per cent.
For example, suppose a trader deals in goods which are tax exempt as well as those which 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 composition scheme for restaurants and manufacturers be lowered to 1 per cent. For traders the ministerial group suggested two tax rates," an official told PTI.
The GoM also recommended allowing businesses who are engaged in inter-state sale to avail the composition scheme, he added.
Around 1.5 million businesses opted for composition scheme, which allows them to pay taxes at a concessional rate and makes compliance easy, under the Goods and Services Tax (GST) which rolled out from July 1. There are over 10 million 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 maintain.
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 per cent on non-AC restaurants, while it is 18 per cent 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.