To ease out the GST compliances for the MSME sector, the Government has introduced a new scheme of tax for the suppliers of goods or services who are not covered under the existing composition scheme u/s 10 of the CGST Act, wherein the GST shall be discharged at a flat rate of 6% and annual returns need to be filed with monthly payment of taxes. This scheme could be recommended to the vendors of registered persons who are not in a position to avail ITC for various reasons, which could be due to ineligibility of the credit u/s 17(5) of the Act (i.e. blocked credits) or for the reason that such procurement is used for making exempt supplies, etc. This note is a basic understanding of the said scheme, which can be evaluated by the Company to see if a vendor opting for such scheme would reduce costs for the Company so that a recommendation can be made to the vendor to evaluate the said option. The following industries could evaluate to see if proposing their vendors to choose the above scheme would benefit them by way of reduction in cost:
- 1. Health care
- 2. Education
- 3. Real estate industry not eligible to claim credits
- 4. Restaurants paying tax @ 5% not eligible for credits
- 5. Persons supplying other exempt goods/services, etc.
Who can opt: Persons
1. Supplying goods or services or both,
2. Having an aggregate turnover of up to Rs. 50 lakh in the preceding financial year (FY). For computing aggregate turnover for determining eligibility to pay tax @ 6%, value of supply of exempt service by way of extending deposits loans or advances in so far as the consideration is represented by way of interest or discount, shall not be taken into account., and
3. Not eligible to pay tax under section 10(1) of the Act i.e., all the below persons whose value of supply of services does not exceed 10% of turnover or 5 lakhs, whichever is higher
- A manufacturer,
- Trader, and a
- Person supplying food as part of service (entry 6(b) of Schedule II to the Act, example: restaurant, canteen, etc,)
Supply of what: Goods or services or both
Rate of tax: 6% (3% CGST & 3% SGST)
Value: Turnover from the date on which liability to take registration arises under the Act. Example, in Telangana if aggregate turnover exceeds Rs. 20 lakh liability to registration is attracted. Hence liability @ 6% will arise from Rs. 20,00,001 up to the turnover in the FY.
Required form: Intimation to be filed in Form GST CMP-02 by selecting the category as “Any other supplier eligible for composition levy”
Time limit for opting
- For an existing taxpayer, 30th Apr ’19 in terms notification 9/2019 dated 29.03.2019 and 2/2019 ibid, read with circular No. 97/16/2019-GST dated 05.04.2019.
- For a new registration: In case of a new taxpayer, in Form GST REG-01 to intimate the option of payment of central tax @ 6%.
- Effective Date: 1st Apr ’19
- Not engaged in making supplies not leviable to GST example: petrol, liquor, etc.
- Not engaged in making inter-State supplies
- Should not be a casual taxable person or a non-resident taxable person
- Not engaged in making any supply through an electronic commerce operator who is required to deduct TCS under section 52 of the Act.
- Not engaged in supply of products such as Ice cream, other edible ice, Pan masala, Tobacco and its substitutes.
- In case of multiple GST registrations under a single PAN where one registration has opted for the 6% scheme, then the other GST registrations under the same PAN would also have to pay @ 6%.
- Not to collect any tax from the recipient and not entitled to any ITC.
- Issue a bill of supply instead of tax invoice
- Disclaimer on the bill of supply needs to be mentioned as ‘taxable person paying tax in terms of notification No. 2/2019- Central Tax (Rate) dated 07.03.2019, not eligible to collect tax on supplies’.
- RCM under section 9(3) and 9(4) has to be paid at applicable rate.
Notification No. 21/2019 Central Tax dated 23.04.2019
- Every supplier shall pay the self-assessed tax in the Form GST CMP-08 of the CGST Rules, 2017 by the 18th of the month following the quarter and
- Every supplier shall file a return for every financial year in the Form GSTR-4 of the CGST Rules, 2017 by the end of 30th April following the end of the financial year.