GST returns filed by companies opting for the GST composition scheme has left the government surprised as 5 lakh companies reported such a turnover which works out to annual sales of Rs 5 lakh only.

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Businesses with turnover up to Rs 20 lakh are exempt from the Goods and Services Tax (GST) regime, which kicked in from July 1, 2017.

Out of 10 lakh businesses that opted for the composition scheme during the July-September period, about 7 lakh have filed GST returns for the quarter.

"To our surprise, out of 7 lakh, 5 lakh people had filed such return for the quarter which results into annual turnover of less than Rs 5 lakh. Now we are wondering why did they register then? Up to Rs 20 lakh (annual turnover) there is no need to register in GST," Finance Secretary Hasmukh Adhia said at an industry meet.

He said if the annual turnover of a company is Rs 5 lakh, why would it register under GST.

"We didn't know this statistics, when we increased the limit for availing composition scheme to Rs 1.5 crore. There is no need to do that," Adhia said.

The GST Council comprising the Centre and states in its November 2017 meeting increased the threshold for composition scheme to Rs 1.5 crore and also decided to amend the GST law to raise the statutory threshold to Rs 2 crore.

Till then the threshold for scheme was Rs 1 crore.

Under the composition scheme, traders and manufacturers are allowed to pay taxes at a reduced rate of 1 per cent.

While restaurant owners have to pay at 5 per cent rate.

"5 lakh businesses showing less than Rs 5 lakh annual turnover. And the average of 7 lakh businesses, was coming to Rs 14 lakh (turnover)," Adhia said.