GST Composition scheme

On 1 July, 2017 our Honourable Prime Minister brought into effect the long awaited GST Act, 2017. This buzzing word has been gaining limelight in media due to its amendments, collections or return filing dates. The concept of One Nation One Tax has brought into many advantages like better and simplified indirect tax structure, more transparency, etc. But while serving its very purpose it has posed drawback of too many return filing for small businessman. To provide the solution composition levy is introduced under section 10 of CGST Act.

Eligibility

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 taxpayer , whose total turnover in the preceding financial year is below Rs 1.5 crores , may opt to pay, in lieu of tax payable in ordinary course by him , an amount calculated at a fixed rate. In case of specified category states (north eastern states and Himachal Pradesh), the limit is Rs 75 lakhs. From 1^st Feb, 2019, the dealer could also supply services under this scheme to the extent of 10 % of turnover or, Rs 50 lakhs (as updated in 32^nd GST council meeting held on 10^th January, 2019).

Who cannot opt for the composition scheme

• Supplier of goods which are not taxable under CGST Act/SCGSTAct/UTGST Act
• Supplier of interstate outward supplies
• Manufacturer of ice-cream, aerated water, pan masala and tobacco
• Person supplying through an electronic commerce operator.

Conditions and restrictions for composition levy (Rule 5)

• He is neither a casual taxable person nor a non resident taxable person
• He has not made any inter state purchase or imported goods
• The goods held in stock by him have not been purchased from unregistered suppliers and when purchased, he pays the tax under reverse charge under section 9(4).
• He shall pay tax under section 9(3) {normal rate}/ 9(4) {reverse charge} on inward supply of goods or services or both.
• He was not engaged in manufacture of goods notified under section 10(2) (e) during previous F.Y.
  • Ice cream and other edible ice, whether or not containing cocoa
  • Pan masala
  • All goods, i.e. tobacco and manufactured tobacco substitutes
• 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
• He shall mention the words “composition taxable person” on every notice or signboard displayed at a prominent place at his principle place of business and at every additional place of business.
• Input tax credit cannot be claimed by a person under the scheme
• He cannot supply GST exempted goods
• The scheme has to be adopted uniformly by all the registered persons having the same PAN

Registration under Composition Scheme

Any unregistered person, who applies for registration may give an option to pay tax under composition levy in PART B of registration form, viz., FORM GST REG -01. Such intimation will only be considered after the grant of registration to the applicant and option will be effective from the date of registration.

Intimation for opting the scheme

A registered person who opts to pay tax under composition levy shall electronically file intimation on GST portal in prescribed form GST CMP -01, prior to the commencement of F.Y.

He shall also furnish the statement in prescribed form within 60 days from the commencement of relevant F.Y. any intimation in respect of any place of business in a states/ UT shall be deemed for pan India.

The additional stock details that are to be furnished within a period of 90 days from the date on which this levy is exercised or further as may be extended by the commissioner electronically in prescribed form GST CMP-03 on common portal are:

1. Stock including the inward supply of goods received from unregistered person
2. Held by him on the day before the date which he opts for composition levy.

If a taxpayer wants to opt composition scheme in the middle of financial year then he can file he form GST CMP -02 but here the rules will be applicable from the succeeding month of the form filed.

Validity of Composition Scheme

The person opting the composition levy can be valid until he satisfy these conditions:

• As long as he satisfies all the conditions of the scheme
• The option lapses when he overpasses his specified limits of aggregate turnover
• After the cessation of option he must pay tax via normal rate and shall also issue tax invoice
• He is required to file an intimation for withdrawal from the scheme in prescribed form within 7 days of occurrence of such event
• ITC will be available for semi finished goods, finished goods and on capital goods held on the date of withdrawal and furnish a statement within 30 days of withdrawal on portal containing such details.

GST rates for composition levy

Turnover in state/ UT means the aggregate value of all outward taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis) and exempt supplies made within a state by a taxable person, exports of goods and services or both and interstate supplies of goods and services made from the state by the said taxable person but excludes central tax, state tax, UT tax, integrated tax and cess.

Bill of supply and GST payments

A person under composition cannot issue a tax invoice because he cannot charge tax from his customers. Hence they issue bill of supply as they pay tax out of their pockets. The GST payments comprises on

• Supplies made
• Reverse charge
• Purchase from unregistered person

Returns to be filed for Composition Scheme Holders

Conclusion

The composition scheme was introduced by the government under GST for benefit of the small traders, manufacturers and restaurants etc.  This will simplify the compliance burden (returns, maintaining books of record, issuance of invoices) on them and will create more liquidity due to limited tax Liability.