GST

Composition scheme under GST & Presumptive Taxation Scheme

Composition scheme under GST is an alternative method of levying tax on the supplies of small taxpayers. This article aims to throw light on the meaning, nature, eligibility, prohibited conditions, applicable tax rates, merits, demerits and some compliance requirements to be met with, in connection with composition scheme under GST.

What is the Composition Scheme under GST?

Composition Scheme was introduced in the GST regime to benefit small taxpayers so that they can be dispensed with tedious GST formalities and pay indirect tax at a fixed percentage of their turnover. The provisions related to the composition scheme under GST are contained in Section 10 of the CGST Act, 2017^[1].

It is an optional scheme and, therefore, taxpayers are left to choose between the normal GST tax regime or composition tax levy. They can compare the pros and cons of both the schemes. While under normal tax regime, they have to pay taxes on outward supplies after deducting ITC on input purchases; composition scheme entails payment of tax at a fixed turnover rate, accompanied with adherence to minimal formalities.

What is the eligibility for opting Composition scheme under GST?

Opting for composition scheme under GST is at the discretion of the taxpayers. The only condition is that a taxpayer may opt for composition scheme under GST if his aggregate turnover is up to Rs. 1.50 crore in the preceding financial year. Otherwise, he shall not be eligible for this scheme.

However, this condition to gauge the eligibility criteria for small taxpayers differs a little in respect of the states of Arunachal Pradesh, Mizoram, Tripura, Manipur, Nagaland, Uttarakhand, Meghalaya, and Sikkim.  For these special category states, taxpayers may opt for composition scheme under GST if their aggregate turnover in the preceding financial year is up to Rs. 75 lacs.

The option to pay taxes under composition scheme, at a fixed rate of turnover, lapses as and when the threshold limit of aggregate turnover crosses Rs 1.5 crore/75 lacs. Further, in case of such default and continuation to pay tax under this scheme, despite crossing over of threshold limit, a penalty is imposed on the concerned supplier.

A composition supplier is not required to file a fresh intimation every year stating his eligibility for the said scheme. In addition, where a taxable person has different segments of businesses (such as textile, electronic appliances, groceries, etc.) under the same PAN, he should register all such businesses under the composition scheme collectively or opt out of the scheme.

Read our article:What is Composition Scheme Under GST Law

What does the term aggregate turnover mean?

To calculate ‘aggregate turnover’ for assessing the eligibility criteria under the Composition scheme, the following shall be included and excluded:

Inclusions in Aggregate turnover:

Value of all outward supplies, i.e. Taxable Supplies, Exempt Supplies, Exports and Inter-State Supplies on an all-India basis, of persons holding the same PAN

Exclusions from Aggregate turnover:

Central tax, State tax, Union territory tax, Integrated tax, Cess and Value of all inward supplies on which tax is payable under Reverse Charge mechanism

What are the rates of tax payable under Composition scheme?

Eligible Taxpayer	CGST rate	SGST rate	Total rate
Manufacturer	0.5% of turnover in State/UT	0.5% of turnover in State/UT	1.0% of turnover in State/UT
Restaurant Service Providers	2.5% of turnover is State/UT	2.5% of turnover is State/UT	5.0% of turnover is State/UT
Other traders of goods	0.5% of the turnover of taxable supplies of goods & services in State/UT	0.5% of the turnover of taxable supplies of goods & services in State/UT	1.0% of the turnover of taxable supplies of goods & services in State/UT

Service providers other than restaurant services of food and drinks are not eligible to opt for composition scheme. Another point to note here is that while for manufacturers and restaurant service providers, the GST rate is applicable on aggregate turnover; traders of goods need to pay GST at the applicable rate on their taxable supplies only. This means that no tax shall be paid by them on exempted supplies.

Other than restaurant service providers, a taxable person (manufacturer or trader) opting for composition scheme can also supply services but subject to the following limits:

1. Not exceeding 10% of turnover in a State/UT in the preceding financial year or
2. Rs. 5 lacs, whichever is higher

To compute ‘aggregate turnover’ for determining the eligibility of composition scheme towards the provision of any services, the supply of exempted services by way of extending deposits, loans or advances in so far as the consideration is represented as interest or discount shall not be taken into account.

Who is not eligible for composition scheme under GST?

The following categories of registered dealers cannot opt for composition scheme:

• Suppliers of services except those mentioned above
• Suppliers of goods not taxable under the Act
• Suppliers making inter-state supplies
• Suppliers making supplies through an e-commerce operator
• Suppliers dealing in certain notified goods such as ice-cream and other edible ice (whether or not containing cocoa), pan masala, aerated waters, tobacco & manufactured tobacco substitutes
• Composition scheme under GST is not applicable on supplies in which tax is payable under RCM

Invoice and ITC claim for Composition Scheme under GST

Indubitably, the composition scheme is meant to facilitate small taxpayers. As it allows the suppliers to avail of the facility of paying tax at a low rate of their turnover, such tax cannot be collected by suppliers from the recipients. The suppliers are deterred from issuing tax invoices to their customers (no GST is charged on the invoice). Moreover, an input tax credit can also not be availed of by the suppliers on their input purchases. Similarly, the customers would also not be able to take ITC claim of tax paid under the composition scheme.

The taxpayer has to mention the words “composition taxable person not eligible to collect tax on supplies” on every bill of supply issued by him to his customers. Further, the registered dealer has to also mention the words “composition taxable person” on every notice or signboard displayed at his principal place of business and at every additional place of his business.

Intimation for opting of Composition Scheme under GST

An unregistered dealer who wishes to opt for composition scheme is required to intimate in Part B of Form GST REG-01 to be filed electronically. On the other hand, a registered dealer, if he wishes to opt for composition scheme under GST, needs to file an intimation in form GST CMP-02 prior to the commencement of the financial year for which the option to pay tax under the aforesaid scheme is exercised. The validity of the scheme shall be as long as all the prescribed conditions under GST law are complied with. Where a dealer wishes to withdraw from the scheme or ceases to satisfy any of the conditions, he shall be required to give an intimation of the same in form GST CMP-04 within 7 days from the day on which the threshold limit has been crossed, and shall issue a tax invoice for every taxable supply made thereafter. However, such person will be allowed to avail the input tax credit in respect of the stock of inputs and inputs contained in semi-finished or finished goods held in stock by him and on capital goods held by him on the date of withdrawal and furnish a statement within 30 days of withdrawal comprising the details of such stock held in FORM GST ITC-01 on the common portal.

Presumptive taxation scheme under GST for service providers

To prevent the hardship of small taxpayers engaged in providing services, a new type of composition scheme was brought under the purview through a notification dated 7^th March, 2019 [Notification No. 2/2019 – Central Tax (Rate)]. The most important point to note here is that this scheme is particularly applicable for those who are not eligible to opt for the normal composition scheme under Section 10 of the CGST Act, 2017.

What is the eligibility for opting presumptive taxation scheme under GST?

Akin to composition scheme under GST, opting for presumptive taxation scheme under GST is also at the discretion of the taxpayers. The only condition is that a taxpayer may opt for presumptive taxation scheme under GST if his aggregate turnover is up to Rs. 50 lacs in the preceding financial year. Otherwise, he shall not be eligible for this scheme.

However, an eligible registered dealer can avail the benefit of this scheme only when he is engrossed in making intra-state supplies of goods or services or both. Moreover, the concerned taxpayer should not be eligible to pay tax u/s 10 with respect to the composition scheme under GST.

A few other conditions are as follows:

• To compute ‘aggregate turnover’ for determining the eligibility of presumptive taxation scheme, the supply of exempted services by way of extending deposits, loans or advances in so far as the consideration is represented as interest or discount shall not be taken into account.
• Just like composition scheme under GST, presumptive tax is not to be collected from the recipients, and the input tax credit is not admissible.
• Presumptive Scheme under GST is not applicable to supplies in which tax is payable under RCM.
• Registered persons should issue a bill of supply instead of invoice and mention the following  words at the top of the bill of supply:

Who is not eligible for presumptive taxation scheme under GST?

The following categories of registered dealers cannot opt for the presumptive taxation scheme under GST:

• The person who is engaged in making a supply of goods on which GST is not leviable
• Persons making inter-State outward supply of goods and services
• A registered person who is either a casual taxable person or a non-resident taxable person
• A supplier making supplies through an e-commerce operator
• Suppliers dealing in certain notified goods such as ice-cream and other edible ice (whether or not containing cocoa), pan masala, aerated waters, tobacco & manufactured tobacco substitutes

Tax rate under the Presumptive taxation scheme

The taxpayer who opts for this presumptive taxation scheme is allowed to pay GST on a presumptive basis @ 6% of aggregate turnover in the State/UT (i.e., 3% CGST and 3% SGST/UTGST).

Returns to be furnished under Composition scheme under GST & Presumptive taxation scheme

The registered dealers paying taxes by virtue of Section 10 of the CGST Act or as per Notification No. 2/2019-Central Tax (Rate) dated 07-03-2019 need to electronically submit the following returns:

• GST CMP-08: Quarterly Statement containing details of self-assessed tax paid, to be filed by 18^th of the month succeeding the corresponding quarter for which the return is filed.

• GSTR-4: A yearly return, for every financial year, to be filed on or before 30^th April following the end of the corresponding financial year for which the return is filed.

Summary note

Composition scheme under GST is an option provided to small taxpayers whose aggregate turnover is up to Rs. 1.5 crore (Rs. 75 lacs in case special category states) during the preceding financial year. It gives them an alternative to paying tax a fixed percentage of their turnover; while doing away with the hassles of many tedious compliance requirements.