Note on 6% Presumptive Scheme under GST

The Central Board of Indirect Taxes (CBIC) has notified a New Scheme in GST vide Notification No. 2/2019 Central Tax (Rate), dated March 7, 2019 in which a tax payer has been allowed to pay GST on a presumptive basis at the rate of 6% (3% CGST and 3% SGST/UTGST). It is a new scheme (herein after referred to as ‘Presumptive Scheme’). The primary reason for not considering this as a composition scheme is that the relevant notification does not refer to Section 10 of the CGST Act, 2017 which is the enabling provision for the composition levy.
This new scheme has been introduced by the CBIC by exercising the powers granted to it under Section 9 (Levy and Collection), Section 11 (Power to grant exemption from tax) and Section 16 (Eligibility and condition for taking input tax credit) of the CGST Act, 2017. The reference to Section 10 of the said Act is completely missing in the notification. Consequently, it has been inferred that this ‘Presumptive Scheme’ is similar to the existing composition scheme but is not a composition scheme.
The salient features of this scheme are as below.

EFFECTIVE DATE OF APPLICABILITY

The benefit of this scheme can be taken by eligible registered persons on or after April 1, 2019 only in respect of Intra-State supplies of goods or services or both.

ELIGIBILITY

A registered person can claim the benefit of this presumptive scheme provided it complies with the following conditions:
(a) His turnover in preceding financial year does not exceed Rs. 50 lakhs. Thus, the suppliers intending to opt for this scheme in the Financial Year 2019-20 should not have the turnover of more than Rs. 50 lakhs during the Financial Year 2018-19. That turnover limit of Rs. 50 lakhs shall be calculated on PAN basis.
(b) He is not eligible to pay tax under composition scheme governed by Section 10 of the CGST Act.
(c) He is not engaged in the business of making any supplies on which GST is not leviable under this Act (i.e., petro products or alcoholic liquor).
(d) He is not engaged in the business of supply of ice cream and other edible ice (HSN 21050000) or pan masala (21069020) or tobacco and manufactured tobacco substitutes (HSN Chapter 24) (e) He is not making any Inter-State outward supplies.
(f) He is neither a casual taxable person nor a non-resident taxable person.
(g) He is not making any supply through e-commerce operator (ECO) on which TCS applies.

RATE OF TAX

If registered person is eligible to take the benefit of this scheme, he shall pay GST at the rate of 6% (3% CGST and 3% SGST/UTGST) on his total supply up to Rs. 50 lakhs. If turnover from goods or services or both (mixed supplies) during the current year exceeds this limit, he shall continue to be eligible to avail of this scheme in that year. However, the benefit of concessional tax shall be available on the turnover of first Rs. 50 lakhs and the turnover which exceeds this limit shall be subject to GST as per the applicable rates.
The supplier opting for this scheme shall pay GST at the rate of 6% on all supplies made by him, irrespective of the fact whether such supply is exempt from tax or has different tax rates. For payment of tax, he is not allowed to claim the credit of taxes paid for inputs, input services or capital goods so procured by him. Meaning thereby he shall be paying GST at the rate of 6% from his pocket.
Where supplier has taken the GST registration for the first time, the presumptive tax at the rate of 6% shall be payable on the supplies made by him only after the date of registration.

Supply consists of Tax under Composition Scheme Tax under Presumptive Scheme 
Goods 1%
Restaurant or Catering Services (other than from serving liquor) 5%
Goods and Services (deemed as composite Supply)

1%

Provided turnover of services does not exceed 10% of total turnover in preceding year or Rs. 5 lakhs, whichever is higher

Goods or Services or both (deemed as mixed supplies)

6%

HOW TO CALCULATE TURNOVER?

The turnover of immediately preceding year shall be considered for determining the eligibility of the supplier to opt for this scheme. That turnover limit of Rs. 50 lakhs shall be aggregate of taxable supplies, exempt supplies, nil or zero rated supplies, but shall exclude the interest earned from deposits made.
The notification has inserted an Explanation to clarify that the supplies made even before the date of the registration shall be considered while calculating the turnover limit. In other words, if supplier takes the GST registration for the first time, the value of total supplies made during the relevant period shall be considered for determining his eligibility to opt for this scheme.

COMPLIANCES INVOLVED

The supplier opting for this scheme shall not collect any tax from the buyer in respect of goods or services supplied by him. On every bill of supply, he has to mention ‘Taxable person paying tax in terms of Notification no 2/2019-Central Tax (Rate), not eligible to collect tax on supplies’.
A supplier eligible to pay tax on presumptive basis under this scheme shall be liable to pay tax at applicable rates in respect of all inward supplies attracting reverse charge under Section 9(3) or Section 9(4) of the CGST Act.

CASE STUDIES

Example 1,On April 1, 2019 Mr. R starts rendering architectural services from Delhi and he expects that his gross receipts for the Financial Year 2019-20 shall be up to Rs. 20 lakhs. With effect from April 1, 2019, a supplier of services is required to take the GST registration if his receipts exceed or are likely to exceed Rs. 20 lakhs. As he is not required to take the registration and if he doesn’t opt for voluntary registration, he shall not be liable to pay any GST in respect of such architectural services.
Example 2, if in above example, he expects that his receipts shall be more than Rs. 20 lakhs but less than Rs. 50 lakhs, then he has to get the GST registration. He now has an option to pay tax on presumptive basis under this scheme at the rate of 6%, in respect of services rendered by him after taking the GST registration or pay tax under normal provision as per applicable tax rate. When he chooses to pay tax as per applicable tax rates, he can issue tax invoice to pass on the credit of the taxes collected by him on such services.
Example 3, if in above example, he expects that his gross receipt during the year shall exceed Rs. 50 lakhs then he has following two options:

(a) To get registered from the date of commencement of profession and pay GST under normal provisions; or
(b) Take the registration once his gross receipt exceeds Rs. 20 lakhs and pay GST on presumptive basis at the rate of 6% on next supplies of up to Rs. 50 and pay GST at applicable rates for the gross receipts exceeding Rs. 70 lakhs.

In the subsequent year, he shall not be liable to opt for this scheme, as his gross receipts in the preceding year have exceeded the threshold limit of Rs. 50 lakhs.

HOW THIS SCHEME IS DIFFERENT FROM EXISTING COMPOSITION SCHEME

Particulars Composition Scheme Presumptive Scheme
Governing Provision Section 10 Section 9
Threshold on turnover or gross receipt during the relevant year Rs.1.50 Crores Rs.50 lacs
Which supplies to be considered in turnover or receipt Only taxable supplies Both taxable and exempt supplies
What to mention in bill of supply ‘Composition Taxable Person – Not eligible to collect tax on Supplies’ ‘Taxable Person paying tax as per Notification No-02/2019-Centarl Tax (Rate), not eligible to collect tax on supplies’
How to avail? Taxable person has to opt for this scheme by filing a form CMP-02 a registered person who wants to opt for this scheme, may do so by filing intimation in in FORM GST CMP-02 by selecting the category of registered person as “Any other supplier eligible for composition levy” as listed at Sl. No. 5(iii) of the said form, latest by 30th April, 2019. Such person shall also furnish a statement in FORM GST ITC03 in accordance with the provisions of sub-rule (3) of rule 3 of the said rules.

CLARIFICATORY NOTIFICATIONS BY CBIC

SECTION 9, READ WITH SECTIONS 11 AND 16, OF THE CENTRAL GOODS AND SERVICES TAX ACT, 2017 – LEVY AND COLLECTION OF TAX – NOTIFIED RATE OF TAX TO BE LEVIED ON SPECIFIED FIRST INTRASTATE SUPPLY OF GOODS OR SERVICES – AMENDMENT IN NOTIFICATION NO. 2/2019-CENTRAL TAX (RATE), DATED 7-3-2019
NOTIFICATION NO. 9/2019-CENTRAL TAX (RATE) [F.NO.354/25/2019-TRU], DATED 29-3-2019
In exercise of the powers conferred by sub-section (1) of section 9, sub-section (1) of section 11, sub-section (1) of section 16 of the Central Goods and Services Tax Act, 2017 (12 of 2017) (herein after referred to as the “said Act”), the Central Government, on the recommendations of the Council, and on being satisfied that it is necessary in the public interest so to do, hereby makes the following amendments in the notification of the Government of India, in the Ministry of Finance (Department of Revenue) No.02/2019- Central Tax (Rate), dated the 7th March, 2019, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 189(E), dated the 7th March, 2019, namely:—
In the said notification,—
(i)  in the Table, in column 3, after clause 7, the following clause shall be inserted, namely:—

“8. Where any registered person who has availed of input tax credit opts to pay tax under this notification, he shall pay an amount, by way of debit in the electronic credit ledger or electronic cash ledger, equivalent to the credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock and on capital goods as if the supply made under this notification attracts the provisions of section 18(4) of the said Act and the rules made there-under and after payment of such amount, the balance of input tax credit, if any, lying in his electronic credit ledger shall lapse.”;
(ii)  in paragraph 3, in the Explanation, after clause (ii), the following clause shall be inserted, namely:—

“(iii) the Central Goods and Services Tax Rules, 2017, as applicable to a person paying tax under section 10 of the said Act shall, mutatis mutandis, apply to a person paying tax under this notification.”.
2. This notification shall come into force on the 1st day of April, 2019.

SECTION 10, READ WITH SECTION 168 OF THE CENTRAL GOODS AND SERVICES TAX ACT, 2017 – COMPOSITION LEVY – CLARIFICATION REGARDING EXERCISE OF OPTION TO PAY TAX UNDER NOTIFICATION NO. 2/2019-CENTRAL TAX (RATE), DATED 7-3-2019
CIRCULAR NO. 97/16/2019-GST [F.NO.CBEC-20/16/04/2018-GST(PT-I)], DATED 5-4-2019
Attention is invited to Notification No. 02/2019-Central Tax (Rate) dated 7-3-2019 (hereinafter referred to as “the said notification”) which prescribes rate of central tax of 3% on first supplies of goods or services or both upto an aggregate turnover of fifty lakh rupees made on or after the 1st day of April in any financial year, by a registered person whose aggregate annual turnover in the preceding financial year was fifty lakh rupees or below. The said notification, as amended by Notification No. 09/2019-Central Tax (Rate) dated 29-3-2019, provides that Central Goods and Services Tax Rules, 2017 (hereinafter referred to as “the said rules”), as applicable to a person paying tax under section 10 of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as “the said Act”) shall, mutatis mutandis, apply to a person paying tax under the said notification.
2. In order to clarify the issue and to ensure uniformity in the implementation of the provisions of the law across field formations, the Board, in exercise of its powers conferred by section 168(1) of the said Act, hereby clarifies the issues raised as below:–

(i) a registered person who wants to opt for payment of central tax @ 3% by availing the benefit of the said notification, may do so by filing intimation in the manner specified in sub-rule 3 of rule 3 of the said rules in FORM GST CMP-02 by selecting the category of registered person as “Any other supplier eligible for composition levy” as listed at Sl. No. 5(iii) of the said form, latest by 30th April, 2019. Such person shall also furnish a statement in FORM GST ITC-03 in accordance with the provisions of sub-rule (3) of rule 3 of the said rules.
(ii) any person who applies for registration and who wants to opt for payment of central tax @ 3% by availing the benefit of the said notification, if eligible, may do so by indicating the option at serial Nos. 5 and 6.1(iii) of FORM GST REG-01 at the time of filing of application for registration.
(iii) the option of payment of tax by availing the benefit of the said notification in respect of any place of business in any State or Union territory shall be deemed to be applicable in respect of all other places of business registered on the same Permanent Account Number.
(iv) the option to pay tax by availing the benefit of the said notification would be effective from the beginning of the financial year or from the date of registration in cases where new registration has been obtained during the financial year.

3. It may be noted that the provisions contained in Chapter II of the said Rules shall mutatis mutandis apply to persons paying tax by availing the benefit of the said notification, except to the extent specified in para 2 above.
4. Difficulty if any, in the implementation of this circular may be brought to the notice of the Board. Hindi version would follow.

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