GST Composition Scheme

As per the Section 10 of CGST Act, 2017. Composition levy

(1) Notwithstanding anything to the contrary contained in this Act but subject to the provisions of sub-sections (3) and (4) of section 9, a registered person, whose aggregate turnover in the preceding financial year did not exceed fifty lakh rupees, may opt to pay, in lieu of the tax payable by him, an amount calculated at such rate as may be prescribed, but not exceeding, ––

(a) one per cent. of the turnover in State or turnover in Union territory in case of a manufacturer,

(b) two and a half per cent. of the turnover in State or turnover in Union territory in case of persons engaged in making supplies referred to in clause (b) of paragraph 6 of Schedule II, and

(c) half per cent. of the turnover in State or turnover in Union territory in case of other suppliers:

subject to such conditions and restrictions as may be prescribed:

Provided that the Government may, by notification, increase the said limit of fifty lakh rupees to such higher amount, not exceeding one crore rupees, as may be recommended by the Council.

 (2) The registered person shall be eligible to opt under sub-section (1), if: —

(a) he is not engaged in the supply of services other than supplies referred to in clause (b) of paragraph 6 of Schedule II;

(b) he is not engaged in making any supply of goods which are not leviable to tax under this Act;

(c) he is not engaged in making any inter-State outward supplies of goods;

(d) he is not engaged in making any supply of goods through an electronic commerce operator who is required to collect tax at source under section 52; and

(e) he is not a manufacturer of such goods as may be notified by the Government on the recommendations of the Council:

Provided that where more than one registered persons are having the same Permanent Account Number (issued under the Income-tax Act, 1961), the registered person shall not be eligible to opt for the scheme under sub-section (1) unless all such registered persons opt to pay tax under that sub-section.

 (3) The option availed of by a registered person under sub-section (1) shall lapse with effect from the day on which his aggregate turnover during a financial year exceeds the limit specified under sub-section (1).

 (4) A taxable person to whom the provisions of sub-section (1) apply shall not collect any tax from the recipient on supplies made by him nor shall he be entitled to any credit of input tax.

 (5) If the proper officer has reasons to believe that a taxable person has paid tax under sub-section (1) despite not being eligible, such person shall, in addition to any tax that may be payable by him under any other provisions of this Act, be liable to a penalty and the provisions of section 73 or section 74 shall, mutatis mutandis, apply for determination of tax and penalty.

Relevant Rules relating to Composition levy as provided in CGST Rules, 2017

Rule 3 – Intimation for composition levy

(1) Any person who has been granted registration on a provisional basis under clause (b) of sub-rule (1) of rule 24 and who opts to pay tax under section 10, shall electronically file an intimation in FORM GST CMP-01, duly signed or verified through electronic verification code, on the common portal, either directly or through a Facilitation Centre notified by the Commissioner, prior to the appointed day, but not later than thirty days after the said day, or such further period as may be extended by the Commissioner in this behalf.

Provided that where the intimation in FORM GST CMP-01 is filed after the appointed day, the registered person shall not collect any tax from 1st July 2017 but shall issue bill of supply for supplies made after the said day.

(2) Any person who applies for registration under sub rule (1) of rule 8 may give an option to pay tax under Section 10 in Part B of FORM REG-01 which shall be considered as an intimation to pay tax under the said section.

(3) Any registered person who opts to pay tax under section 10 electronically file an intimation in FORM GST CMP-02 duly signed or verified through electronic verification code, on the common portals, either directly or through a Facilitation Centre notified by the Commissioner, prior to the commencement of the financial year for which the option to pay tax under the aforesaid section is exercised and shall furnish the statement in FORM GST ITC-03 in accordance with the provisions of sub-rule (4) of rule 44 within a period of sixty days from the commencement of the relevant financial year.

(3A) Notwithstanding anything contained in sub-rules (1), (2) and (3), a person who has been granted registration on a provisional basis under rule 24 or who has been granted certificate of registration under sub-rule (1) of rule 10 may opt to pay tax under section 10 with effect from the first day of the month immediately succeeding the month in which he files an intimation in FORM GST CMP-02, on the common portal either directly or through a Facilitation Centre notified by the Commissioner, on or before the 31st day of March, 2018, and shall furnish the statement in FORM GST ITC-03 in accordance with the provisions of sub-rule (4) of rule 44 within a period of ninety days from the day on which such person commences to pay tax under section 10:

Provided that the said persons shall not be allowed to furnish the declaration in FORM GST TRAN-1 after the statement in FORM GST ITC-03 has been furnished.

 

(4) Any person who files an intimation under sub rule (1) to pay tax under section 10 shall furnish the details of stock, including the inward supply of goods received from unregistered persons, held by him on the day preceding the date from which he opts to pay tax under the said section, electronically, in FORM GST CMP-03, on the common portal, either directly or through a Facilitation Centre notified by the commissioner , within a period of ninety days from the date on which the option for composition levy is exercised or within such further period as may be extended by the commissioner in this behalf.

 

(5) Any intimation under sub rule (1) or sub rule (3) or sub-rule (3A) in respect of any place of business in any state or Union territory shall be deemed to be an intimation in respect of all other places of business registered on the same Permanent Account Number.

Rule 4- Effective date for Composition levy:

 (1) The option to pay tax under section 10 shall be effective from the beginning of the Financial year, where the intimation is filed under sub rule (3) of rule 3 and the appointed day where the intimation is filed under sub rule (1) of the said rule.

 (2) The intimation under sub rule (2) of rule 3, shall be considered only after the grant of registration to the applicant and his option to pay tax under section 10 shall be effective from the date fixed under sub-rule (2) or (3) of rule 10.

 Rule 5- Conditions and restrictions for composition levy:

 (1) The person exercising the option to pay tax under section 10 shall comply with the following conditions, namely

 (a) He is neither a casual taxable person nor a non-resident taxable person;

 (b) The goods held in stock by him on 1st July 2017 have not been purchased in the courses of inter-state trade or commerce or imported from a place outside India or received from his branch situated the State or from his agent or principal outside the State, where the option is exercised under sub-rule (1) of rule 3;

 (c) The goods held in stock by him have not been purchased from an unregistered supplier and where purchased, he pays the tax under sub-section (4) of section 9;

 (d) He shall pay tax under sub-section (3) or sub-section (4) of section 9 on inward supply of goods or services or both;

 (e) He was not engaged in the manufacture of goods as notified under clause (E) of sub-section (2) of section 10, during the preceding financial year;

 (f) He shall mention the words ‘Composition taxable person, not eligible to collect tax on supplies” at the top of the bill of supply issued by him; and

 (g) He shall mention the words “Composition taxable person” on every notice or signboard displayed at a prominent place at his principal place of business and at every additional place or places of business.

 (2) The registered person paying tax under section 10 may not file a fresh intimation every year and he may continue to pay tax under the said section subject to the provisions of the Act and these rules.

Rule 6- Validity of Composition levy:

 (1) The option exercised by a registered person to pay tax under section 10 shall remain valid so long as he satisfies all the conditions mentioned in the said section and under these rules.

 (2) The person referred to in sub-rule (1) shall be liable to pay tax under sub-section (1) of section 9 from the day he ceases to satisfy any of the conditions mentioned in section 10 or the provisions of this chapter and shall issue tax invoice for every taxable supply made thereafter and he shall also file an intimation for withdrawal from the scheme in FORM GST CMP-04 within seven days of the occurrence of the event.

 (3) The registered person who intends to withdraw from the composition scheme shall, before the date of such withdrawal, file an application in FORM GTS CMP-04, duly signed or verified through electronic verification code, electronically on the common portal.

 (4) Where the proper officer has reasons to believe that the registered person was not eligible to pay tax under section 10 or has contravened the provisions of the Act or provisions of this chapter, he may issue a notice to such person in FORM GST CMP-05 to show cause within fifteen days of the receipt of such notice as to why the option to pay tax under section 10 shall not be denied.

 (5) Upon receipt of the reply to the show cause notice issued under sub-rule (4) from the registered person in FORM GST CMP-06, the proper office shall issue an order in FORM GST CMP-07 within a period of thirty days of the receipt of such reply, either accepting the reply, or denying the option to pay tax under section 10 from the date of the option or from the date of the event concerning such contravention, as the case may be.

 (6) Every person who has furnished an intimation under sub-rule (2) or filed an application for withdrawal under sub rule (3) or a person in respect of whom an order of withdrawal of option has been passed in FORM GST CMP-07 under sub-rule (5), may electronically furnish at the common portal, either directly or through a Facilitation Centre notified by the Commissioner, a statement in FORM GST ITC-01 containing details of the stock of inputs and inputs contained in semi-finished or finished goods held in stock by him on the date on which the option is withdrawn or denied, within a period of thirty days from the date from which the option is withdrawn or from the date of the order passed in FORM GST CMP-07, as the case may be

 (7) Any intimation or application for withdrawal under sub-rule (2) or (3) or denial of the option to pay tax under section 10 in accordance with sub-rule (5) in respect of any place of business in any State or Union territory, shall be deemed to be an intimation in respect of all other places of business registered on the same Permanent Account Number.

Rule 7: Rate of tax of the composition levy

The category of registered persons, eligible for composition levy under section 10 and the provision of this Chapter, specified in column (2) of the Table below shall pay tax under section 10 at the rate specified in column (3) of the said Table:

Sl. No.	Category of registered persons	Rate of tax
1	Manufacturers, other than manufacturers of such goods as may be notified by the Government	half per cent.
2	Suppliers making supplies referred to in clause (b) of paragraph 6 of Schedule II	two and a half per cent
3	Any other supplier eligible for composition levy under section 10 and the provisions of this Chapter	half per cent. of the turnover of taxable supplies of goods

 

 

COMPOSITION SCHEME- AN ANALYSIS

 

Introduction:

 

Small businesses are the backbone of the Indian economy. The GST have huge impact on the small businesses to comply as per the rules and regulation under GST. Due to very practical and reasonable reason most of the small businesses are not ready to comply with all the rules and regulation under GST unlike corporate, big and medium businesses. To bring the relief to small business on GST Compliance, composition scheme option has been provided. This will make them burden free from devoting enormous time on GST compliance like rules, regulation, return filling, etc. Under Composition scheme the business man can opt to pay a fixed percentage of turnover with a nominal rate as fees in lieu of tax and be relieved from the detailed compliance of the provisions of law.

 A taxpayer whose turnover is below Rs 1.5 crore* can opt for Composition Scheme. In case of North-Eastern states and Himachal Pradesh, the limit is now Rs 75* lakh.

To opt in for composition scheme a taxpayer has to file Form GST CMP-01 or GST CMP-02 with the government.  This intimation should be given at the beginning of every Financial Year by a dealer wanting to opt for Composition Scheme. A composition dealer cannot issue tax invoice, instead they can issue a bill of supply. This is because a composition dealer cannot charge tax from their customers. The dealer should also mention “composition taxable person, not eligible to collect tax on supplies” at the top of the Bill of Supply.  GST Payment has to be made out of pocket. The consumer/ the receiver of supplies will not be liable to pay GST to the supplier who has opted for Composition Scheme.

The following people cannot opt for the scheme:

• Taxpayer supplying exempt supplies.
• Supplier of services other than restaurant related services
• Manufacturer of ice cream, pan masala, or tobacco
• Casual taxable person or a non-resident taxable person
• Businesses which supply goods through an e-commerce operator

Conditions for availing Composition Scheme

The following criteria to be fulfilled to opt for GST Composition Scheme:

1. The taxpayer cannot be a casual taxable person nor a non-resident taxable person
2. The goods held in stock by the taxpayer on the date GST came into force should not have been purchased in the course of inter-state trade or commerce or imported from a place outside India or received from a branch of the business situated outside the State or from the taxpayer’s agent or principal outside the State.
3. The goods held in stock by the taxpayer has should not have been purchased from an unregistered supplier and if purchased from an unregistered supplier, the taxpayer must then have paid GST on the purchase on reverse charge basis.
4. On the inward supply of goods or services or both, taxpayer should have paid tax under reverse charge basis.
5. Taxpayer has to pay tax at normal rates for transactions under Reverse Charge Mechanism
6. The dealer cannot supply GST exempted goods
7. The taxpayer should not have been engaged in the manufacture of goods as notified under clause (e) of subsection (2) of section 10, during the preceding financial year.
8. If a taxable person has different segments of businesses (such as textile, electronic accessories, groceries, etc.) under the same PAN, they must register all such businesses under the scheme collectively or opt out of the scheme.
9. The taxpayer must mention the words “composition taxable person, not eligible to collect tax on supplies” at the top of the bill of supply issued by him.
10. The taxpayer has to mention the words “composition taxable person” on every notice or signboard displayed at a prominent place at his principal place of business and at every additional place or places of business.
11. No Input Tax Credit can be claimed by a dealer opting for composition scheme
12. The taxpayer can only make intra-state supply (sell in the same state) i.e. no inter-state supply of goods.
13. Those supplying goods can provide services of up to Rs. 5 lakh,

GST rates for a composition dealer

Following chart explains the rate of tax on turnover applicable for composition dealers:

As per notification dated 01.01.2018, turnover in case of traders has been defined as ‘Turnover of taxable supplies of goods’.

Returns under composition scheme

A Composition dealer is required to file a quarterly return GSTR-4 by 18th of the month after the end of the quarter. Also, an annual return GSTR-9A has to be filed by 31st December of next financial year.

Advantages of Composition Scheme

• Lesser compliance
• Limited tax liability
• High liquidity as taxes are at a lower rat

Disadvantages of Composition Scheme

• Only Intra state transactions and no inter-state transactions
• No Input Tax Credit available to composition dealers
• The taxpayer will not be eligible to supply exempt goods or goods through an e-commerce portal.