{"id":32221,"date":"2020-05-09T10:09:08","date_gmt":"2020-05-09T04:39:08","guid":{"rendered":"https:\/\/enterslice.com\/learning\/?p=32221"},"modified":"2024-05-22T17:30:09","modified_gmt":"2024-05-22T12:00:09","slug":"composition-scheme-under-gst-presumptive-taxation-scheme","status":"publish","type":"post","link":"https:\/\/enterslice.com\/learning\/composition-scheme-under-gst-presumptive-taxation-scheme\/","title":{"rendered":"Composition scheme under GST & Presumptive Taxation Scheme"},"content":{"rendered":"

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<\/strong>.<\/p>\n\n\n\n

What is the Composition Scheme under GST?<\/h2>\n\n\n\n

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<\/strong>[1]<\/strong><\/a><\/sup>.<\/p>\n\n\n\n

It is an optional scheme and, therefore, taxpayers are left to choose between the normal GST <\/a><\/strong>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.<\/p>\n\n\n\n

What is the eligibility for opting Composition scheme under GST?<\/h2>\n\n\n\n

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<\/strong> in the preceding financial year. Otherwise, he shall not be eligible for this scheme.<\/p>\n\n\n\n

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<\/strong>, taxpayers may opt for composition scheme under GST if their aggregate turnover in the preceding financial year is up to Rs. 75 lacs<\/strong>.<\/p>\n\n\n\n

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.<\/p>\n\n\n\n

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.<\/p>\n\n\n\n

Read our article<\/b>:What is Composition Scheme Under GST Law<\/a><\/mark><\/p>\n\n\n\n

What does the term aggregate turnover mean?<\/h2>\n\n\n\n

To calculate ‘aggregate turnover’ for assessing the eligibility criteria under the Composition scheme, the following shall be included and excluded:<\/p>\n\n\n\n

Inclusions in Aggregate turnover:<\/em><\/h3>\n\n\n\n

Value of all outward supplies, i.e. Taxable Supplies, Exempt Supplies, Exports and Inter-State Supplies on an all-India basis<\/a>, of persons holding the same PAN<\/p>\n\n\n\n

Exclusions from Aggregate turnover:<\/em><\/h3>\n\n\n\n

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<\/p>\n\n\n\n

What are the rates of tax payable under Composition scheme?<\/h2>\n\n\n\n
Eligible Taxpayer               <\/strong><\/td>CGST rate<\/strong><\/td>SGST rate<\/strong><\/td>Total rate<\/strong><\/td><\/tr>
Manufacturer<\/td>0.5% of turnover in State\/UT<\/td>0.5% of turnover in State\/UT<\/td>1.0% of turnover in State\/UT<\/td><\/tr>
Restaurant Service Providers<\/td>2.5% of turnover is State\/UT<\/td>2.5% of turnover is State\/UT<\/td>5.0% of turnover is State\/UT<\/td><\/tr>
Other traders of goods<\/td>0.5% of the turnover of taxable supplies<\/strong> of goods & services in State\/UT<\/td>0.5% of the turnover of taxable supplies<\/strong> of goods & services in State\/UT<\/td>1.0% of the turnover of taxable supplies<\/strong> of goods & services in State\/UT<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

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<\/strong>; traders of goods need to pay GST at the applicable rate on their taxable supplies<\/strong> only. This means that no tax shall be paid by them on exempted supplies.<\/p>\n\n\n\n

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<\/strong>:<\/p>\n\n\n\n

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

    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.<\/p>\n\n\n\n

    Who is not eligible for composition scheme under GST?<\/h2>\n\n\n\n

    The following categories of registered dealers cannot opt for composition scheme:<\/p>\n\n\n\n