Composition Scheme under GST: The composition scheme under the GST regime is a method of levy of tax designed for small taxpayers whose turnover is up to Rs. 1.5 crore. It is an optional scheme and not all taxpayers are eligible to opt for this.
The basic eligibility criteria to opt for Composition scheme is to small taxpayers whose aggregate turnover in the preceding financial year did not cross Rs. 1.5 crore. Following is a list of persons who cannot avail the Composition Scheme.
The word ‘composition’ comes from the Latin componere, meaning “put together”. It is a feature of Indirect Tax laws that in order to provide a comfort to assessee from complying with the requirement of paying tax on value addition by maintaining detail of ‘inputs’ and ‘outputs’, an option is provided to go for a put together scheme. The GST law provides the option of availing the benefit of Composition Levy to small businesses.The objective of composition scheme is to bring simplicity and to reduce the compliance cost for the small taxpayers. Moreover, it is optional and the eligible person opting to pay tax under this scheme can pay tax at a prescribed percentage of his turnover every quarter, instead of paying tax at normal rate.
Composition Scheme Under GST
Please Note – The threshold for composition scheme will be increased to Rs. 1.5 crore (from earlier 1 crore)
Who cannot opt 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
GST Council 23rd Meeting Highlights (10-11-2017)
- i. Uniform rate of tax @ 1% under composition scheme for manufacturers and traders (for traders, turnover will be counted only for supply of taxable goods). No change for composition scheme for restaurant.
- ii. Supply of services by Composition taxpayer upto Rs 5 lakh per annum will be allowed by exempting the same
- iii. Annual turnover eligibility for composition scheme will be increased to Rs 1.5 crore from the present limit of Rupees 1 crore under the law. Thereafter, eligibility for composition will be increased to Rs. 1.5 Crore per annum.
- iv. The changes recommended by GST Council at (iii) above will be implemented only after the necessary amendment of the CGST Act and SGST Acts.
How to Opt Composition Scheme?
|Various Scenarios of opting the scheme||How to opt||Effective date for Composition|
|The taxable person migrating to GST from previous regime||Can opt by filing FORM GST CMP-01 not later than 30 days or such further period as may be extended, from the Appointed date.||Effective from Appointed date|
|Person taking new registration under GST||Can opt at the time of obtaining registration in Part B of FORM GST REG-01||Effective form the date of registration|
|A registered person under GST opting for composition scheme||May opt by filing FORM GST CMP-02 prior to commencement of FY for which option is exercised||Effective from the beginning of the financial year|
|The taxable person migrating to GST from previous regime and Person taking new registration under GST (one time) but opting for Composition Scheme after the appointed date or his date of registration||By filing intimation in FORM GST CMP-02||Effective from the first day of the month immediately succeeding the month in which he files an intimation|
Any registered person who has availed of input tax credit and also opts to pay tax under Composition Scheme, then, such person shall be required to pay an amount equivalent to the credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock and on capital goods, reduced by such percentage points as may be prescribed, on the day immediately preceding the date of exercising of such option. However, if after such payment any balance of input tax credit is left lying in his electronic credit ledger, such balance shall lapse. Statement of such input tax shall be filed in Form GST ITC-03.
(1) Who can opt for composition Levy?
A registered person whose aggregate turnover in the preceding financial year did not exceed seventy five lakh rupees may opt to pay, in lieu tax at the normal rates, tax at such rate as prescribed under composition levy
I.The threshold for composition scheme will be increased to Rs. 1.5 crore (from earlier 1 crore)
(2) Following persons will not be eligible to opt the composition scheme even conditions as mentioned in serial number 1 are fulfilled by them
- (a) He is engaged in making supply of services (i.e. service providers)
- (b) He is engaged in making any supply of goods which are not leviable under the GST
- (c) He is engaged in making any inter-state sales of goods
- (d) He is engaged in making any supply of goods through an electronic commerce operator and is required to collect tax at source.
- (e) He is a manufacturer of such goods as may be notified by the Government.
Where more than one registered persons are having same permanent account number (PAN), the registered person shall not be eligible to opt for Composition Levy unless all such registered persons opt to pay tax under the said composition levy.
Notwithstanding anything contained in serial number 2(a) above, a registered person engaged in any supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration, may opt for composition Levy.
The persons paying tax under composition scheme are required to pay tax on quarterly basis and also required to file a quarterly return in FORM GSTR-4 by the 18th of the month following the end of the quarter instead of any statement of outward or inward supplies. The proper officer may cancel the registration where the said person has not furnished returns for three consecutive tax periods. Registered person opting for composition levy have to file Annual Return in FORM GSTR-9A.
(3) Rate of tax under composition Levy
|S.No||Nature of activity of supplier||Rate of Tax|
|1||Manufacturers, other than manufacturers of such goods as may be notified by the Government||1%|
|2||Suppliers making supplies referred to in clause (b) of paragraph 6 of Schedule II||2.50%|
|3||Any other supplier eligible for composition levy||.50%|
Please note – As per the 23rd GST Council Meet, the GST rate for manufacturers is going to be reduced from 2% to 1%.
A registered person opting for composition scheme shall not issue a tax invoice. He shall issue a BILL OF SUPPLY containing various details as given below:
- (a) Name, address and GSTIN of the supplier
- (b) a consecutive serial number not exceeding sixteen characters, in one or multiple series, containing alphabets or numerals or special characters -hyphen or dash and slash symbolised as “-” and “/” respectively, and any combination thereof, unique for a financial year
- (c) date of its issue
- (d) name, address and Goods and Services Tax Identification Number or Unique Identity Number, if registered, of the recipient
- (e) Harmonised System of Nomenclature Code for goods or services
- (f) description of goods or services or both
- (g) value of supply of goods or services or both taking into account discount or abatement, if any; and
- (h) signature or digital signature of the supplier or his authorised representative
Registered person may not issue a bill of supply if the value of the goods or services or both supplied is less than two hundred rupees. The person 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. The person 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.
Validity and Withdrawal
The option exercised by registered person to pay tax under composition scheme shall remain valid so long as he satisfies all the conditions. He 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.
The option to pay tax under composition scheme lapses from the day on which his aggregate turnover during the financial year exceeds the specified limit (Rs. 1 Cr/Rs. 75 lakhs) or he ceases to satisfy any of the conditions of this Scheme. He is required to file an intimation for withdrawal from the scheme in FORM GST CMP04 within seven days from the day on which the threshold limit has been crossed. A registered person paying tax under this scheme may also voluntarily opt out by filing FORM GST CMP-04.
Contravention of any provisions of Composition levy
Where any contravention is observed by the proper officer wherein the registered person was not eligible to pay tax under the composition scheme or has contravened the provisions of the Act or provisions of the CGST Rules, 2017, 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 the composition scheme shall not be denied.
Upon receipt of the reply to the said show cause notice in FORM GST CMP-06, the proper officer 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 the composition scheme from the date of the option or from the date of the event concerning such contravention, as the case may be.
Further, Section 12(5) of Act provides that If the proper officer has reasons to believe that a taxable person has paid tax under Composition scheme despite not being eligible, then, in addition to any tax that may be payable by him under any other provisions of this Act, the taxable person shall also be liable to a penalty.
The Composition scheme can be availed by the following categories of registered persons:
- He is not engaged in the supply of service other than supplies referred to in caluse (b) of paragraph 6 of Schedule II (Restaurant Service).
- Person not engaged in making any supply of goods which are not leviable to tax under GST Laws.
- Person not engaged in inter-state outward supplies of goods.
- The registered person should not be engaged in making any supply of goods through an electronic commerce operator. This restriction constrains numerous small suppliers/vendors from availing benefit of composition scheme. Although there is a valid reason behind the imposition of this restriction – the supply from an e-commerce operator may result in inter-state outward supplies in many cases.
- The taxable person should not be a manufacturer of such goods as may be notified by the Government on the recommendations of the Council. Central Government by way of Notification No. 8/2017-CT has specified goods manufacturers of which shall not be eligible for this scheme.
|1||2105 00 00||Ice cream and other edible ice products, whether or not containing cocoa|
|2||2106 90 20||Pan Masala|
|3||24||Tobacco and manufactured tobacco substitutes|
The conditions and restrictions for composition levy as provided in Rule-5 of the Central Goods and Service Tax Rules, 2017 (“Rules”) are as follows:
- The person should neither be a casual taxable person nor a non-resident taxable person.
- The goods held in stock on the appointed day had not been purchased in the course of inter-State trade or commerce or imported from a place outside India or received from his branch situated outside the State or from his agent or principal outside the State,
- The goods held in stock by him have not been purchased from an unregistered person and where purchased, he pays the tax under reverse charge basis in compliance of sub-section (4) of section 9 of the Act;
The benefit of composition scheme will be available only when all the registered entities under a single Permanent Account Number opts for such scheme.
GST Composition Scheme Formats
|GST CMP-01||Intimation to pay tax under section 10 (composition levy) (Only for persons registered under the existing law migrating on the appointed day)|
|GST CMP-02||Intimation to pay tax under section 10 (composition levy) (For persons registered under the Act)|
|GST CMP-03||Intimation of details of stock on date of opting for composition levy (Only for persons registered under the existing law migrating on the appointed day)|
|GST CMP-04||Intimation/Application for withdrawal from composition Levy|
|GST CMP-05||Notice for denial of option to pay tax under section 10|
|GST CMP-06||Reply to the notice to show cause|
|GST CMP-07||Order for acceptance / rejection of reply to show cause notice|
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