CBIC notifies New Presumptive Taxation Scheme under GST w.e.f 1st April 2019

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. Had it been deemed as composition scheme, the relaxation, allowed to the composite supplier would have been same in this new scheme. However, the notification does not offer similar relaxation to the suppliers opting for this scheme.

The salient features of this scheme are enumerated below.

1. 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.

2. 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, pan masala, tobacco or its substitutes.
(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.

3. 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%

4. 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.

5.. 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.

6. 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 lakhs¹. 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.

Conclusion

This notification restricts a supplier from opting for this scheme if he makes any inter-State supply of services. If a supplier never intended to make any inter-State supply but eventually ends up in rendering some services in different States, then how such situation should be dealt with? The notification does not specify anything in this regard whether the scheme shall be deemed to have been withdrawn retrospectively or prospectively. If it is deemed to have been withdrawn retrospectively, whether the differential tax amount shall be payable with or without interest is also not clear.

Further, it is also not specifically mentioned whether the unutilized balance in e-credit ledger shall lapse or it shall continue to be available which can be used on opting out of this scheme.

This scheme has left some unanswered queries which the supplier or service provider may raise and it is advisable that CBIC should immediately issue clarifications in this regard. Though this scheme looks to be very attractive, yet the conditions attached with it are very rigid. Pointers to reflect how this scheme is different from existing composition scheme are enumerated in the table below.

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. lakhs
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	It can be availed of automatically with effect from April 1, 2019
Applicability of Compensation Cess	No	Not yet stated
GST Return to be filled	GSTR 4	Not yet stated

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1. The increased threshold limit of Rs. 40 lakhs for GST registration shall be applicable only if the supplier is engaged in supply of goods (except in case of special category states). This threshold limit of Rs. 20 lakhs shall continue to remain same in case of supply of services.