List of Special Category States in GST: Rules, Threshold Limits, & Benefits

The government of India has provided several advantages to states with distinct geographic and socioeconomic difficulties within the GST structure. These are referred to as Special Category States under the GST. 

These states benefit from larger input tax credits, reduced registration restrictions, and other measures intended to assist fiscal needs and economic growth. Businesses that operate in or intend to expand to these regions must comprehend the list of special category states in GST, their threshold restrictions, and the benefits offered.

What is a Special Category State?

The Constitution's Article 279A (4)(g) gives the GST Council the authority to provide "special status" to certain specific states, giving the idea of the Special Category States (SCS). These states are typically distinguished by:

• Hilly and difficult terrain
• Low population density or sizeable tribal populations
• Strategic locations along international borders
• Economic and infrastructural backwardness

In the GST regime, these states receive preferential treatment, such as lower GST registration threshold limits and relaxed compliance norms.

List of Special Category States under GST

The GST Council has notified the following 11 states as Special Category States:

1. Arunachal Pradesh 
2. Assam
3. Jammu & Kashmir
4. Himachal Pradesh  
5. Manipur
6. Meghalaya
7. Mizoram  
8. Nagaland
9. Sikkim  
10.  Tripura   
11. Uttarakhand

Note: After the abolition of Article 370 in 2019, J&K's special status has changed, though certain transitional provisions still apply.

Criteria for Special Category States

The guidelines set by the National Development Council (NDC) and Planning Commission define the criteria for selection of Special Category State, including:

• Strategic importance due to borders with neighbouring countries
• Difficult hilly terrain and distance from major markets
• Lack of Infrastructure, such as roads, industries or digital access
• High Percentage of the tribal population
• Lower capacity to generate state revenue

GST Threshold Limit for Special Category States:

₹40 lakhs is applicable only for intra-state supply of goods and on the condition that the supplier is not required to register under Section 24 of the CGST Act.

Statewise Limits-

Benefits of Special Category States under GST

Businesses operating in Special Category States receive several compliance and tax-related benefits, including:

1. Lower Compliance Burden:

• Simplified GST returns and fewer filing requirements
• Relaxed registration rules for smaller enterprises

 2. Composition Scheme Eligibility:

• Special Category States can opt for the GST Composition Scheme at reduced turnover limits
• Threshold: Rs.75 lakh (vs Rs.1.5 crore for other states)

3. Higher Budgetary Support:

• Additional grants under Central Government schemes
• Investment incentives to promote industrial growth

 4. Exemption from Some Provisions:

• Freedom to adopt state-specific e-invoicing or returns, especially in remote areas

5. Infrastructural Development

• GST revenue-sharing mechanisms ensure a timely fund flow to these states for improving infrastructure

Running a business in a Special Category State comes with certain advantages under the GST regime. These benefits are reduced threshold limits, composition scheme eligibility, and simplified compliance. The benefits aim to promote economic growth in Special Category States. Understanding the special category states, the rules in GST and thresholds is required for businesses and startups to establish a business in such areas.