Understanding GST : Composition Scheme Presumptive and Taxation in India

As a small or medium business owner or a startup founder in India, you may be struggling with the complexities of the tax system, which can be a significant burden on your business. To help alleviate this burden, the Indian government has introduced two tax schemes: the GST Composition Scheme and Presumptive Taxation.

What is the GST Composition Scheme?

The GST Composition Scheme is a tax scheme that is designed to help small businesses by reducing their tax burden and simplifying the tax filing process. Under this scheme, businesses with a turnover of less than Rs. 1.5 crore can opt to pay a fixed percentage of their turnover as tax, instead of the regular GST rate. Currently, the fixed percentage is 1%, 2%, or 5%, depending on the type of business.

The GST Composition Scheme is beneficial for small businesses because it reduces the compliance burden and makes it easier for them to do business. However, businesses that opt for this scheme cannot claim input tax credit and cannot supply goods or services outside their home state. Additionally, businesses that are engaged in the supply of goods that are not leviable to GST, inter-state supplies, or supplies through e-commerce operators are not eligible for this scheme.

What is Presumptive Taxation?

Presumptive Taxation is a tax scheme that is designed to help small businesses and professionals by simplifying the tax filing process. Under this scheme, businesses with a turnover of less than Rs. 2 crore and professionals with gross receipts of less than Rs. 50 lakh can opt to pay tax on a presumptive basis. This means that the tax will be calculated based on a specified percentage of their turnover or gross receipts, and they do not have to maintain detailed records of their income and expenses.

The presumptive taxation scheme is beneficial for small businesses and professionals because it reduces the compliance burden and makes it easier for them to do business. However, businesses that opt for this scheme cannot claim deductions for expenses and cannot carry forward losses. Additionally, professionals who opt for this scheme cannot claim depreciation on assets.

Which Scheme is Better for Your Business?

Choosing between the GST Composition Scheme and Presumptive Taxation depends on the nature of your business and your turnover. If your turnover is less than Rs. 1.5 crore and you are engaged in the supply of goods or services that are eligible for the GST Composition Scheme, then this scheme may be beneficial for your business. However, if you are a professional or your turnover is less than Rs. 2 crore, then the Presumptive Taxation scheme may be more suitable for your business.

Conclusion

The GST Composition Scheme and Presumptive Taxation are two tax schemes that are designed to help small businesses and professionals by reducing their tax burden and simplifying the tax filing process. While these schemes have their advantages, it is important to understand the eligibility criteria and the limitations of each scheme before opting for them. By carefully considering the pros and cons of each scheme, you can make an informed decision that is best for your business.