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Once upon a time when I have started pursuing my CA articleship in the year 2015 a wise man has told that if you can able to understand '5W's' of any of the law or topic which you are practicing daily in office then you might become the expert in such law or topic so in this article we will discuss the '5W's of composition scheme under GST' to have systematic grip over the quoted topic.

5W's of composition scheme under GST:

  • Why there is a requirement of composition scheme?
  • Who all are eligible for opting to such scheme?
  • What is the rate at which supplier is require to pay GST under such scheme?
  • What all are the conditions and restrictions required to be complied for opting to such scheme?
  • What is the procedure required to be followed for opting to such scheme?

Now let us start discussing on each of the W's of composition scheme.

Why there is a requirement of composition scheme?

For a small manufacturer or trader it will always become difficult to comply to all the regulations or provisions as the cost of compliance of such manufacturer or trader will be higher when compare to its profit so to provide relaxation to small manufacturer or trader a scheme named as composition scheme is introduced vide section 10 of CGST Act. Due to such scheme various benefits are made eligible for small manufacturer or traders which are as follows:

  • Taxpayers opted under this scheme shall require to file one return on quarterly basis rather than filling the monthly returns so it this may lead to lower tax burden.
  • Certain relaxations have been provided for the maintaining records of inward supplies.
  • No requirement of ensuring that the input tax credit on inward supplies as taxpayers under this scheme shall not be eligible for taking the input tax credit.

Who all are eligible for opting to such scheme?

Following classes of persons whose aggregate turnover does not exceed Rs.1Crore in the preceding financial year can opt for this scheme, they are:

  • Manufacturer's except the manufacturer's engaged in the manufacturer of certain goods which are still to be notified by GST council.
  • Taxpayers engaged in the supply of service as a part of supply of food or any other article for human consumption (Restaurant service).
  • Any other suppliers such as traders who is engaged in supply of goods but not in supply of services.

However for computation of aforesaid aggregate turnover of Rs.1Crores following supplies shall be included and excluded, which are:

Inclusions:

  • Taxable supplies
  • Exempt supplies
  • Export of goods or services or both

Exclusions:

  • Value of inward supplies on which GST shall be required to be paid under reverse charge.
  • Certain taxes such CGST, SGST, IGST and their cusses.

Whereas certain taxpayers which are specifically restricted for opting to such scheme which are as under:

  • Taxpayer engaged in supply of service other than supply of restaurant services (as mentioned above).
  • Taxpayer who is making the Inter-state outward supply of goods.
  • Taxpayer who is engaged in making any supply of goods through electronic commerce operator.
  • Tax payer shall not be casual taxable person nor non-resident taxable person.

What is the rate at which supplier is require to pay GST under such scheme?


Suppliers

CGST

SGST

Aggregate

Manufacturer

0.50%

0.50%

1%

Restaurant related service

2.50%

2.50%

5%

Traders

0.50%

0.50%

1%


What all are the conditions and restrictions required to be complied for opting to such scheme?

  • Taxpayer who is opting under this scheme shall not have any of the inter-state procurements and imported procurements in his stock on the date of making the application for opting for such scheme.
  • Taxpayer shall not have any of the procurements from unregistered person in his stock however he can be allowed to opt for the scheme if GST under reverse charge is paid on such purchases.
  • Taxpayer shall require to mention the words 'Composition taxable person not eligible to collect the tax on supplies' on the top of bill of supplies issued by him.
  • Taxpayer shall require mention of words 'Composition taxable person' on sign boards of principle premises & additional premises of such person and on all the notices issued by him during the course of business.
  • For every financial year fresh intimation is required to be made towards opting under this scheme.

What is the procedure required to be followed for opting to such scheme?

  • Any of the taxpayers who are required to opt for such scheme need to update Part B of FORM GST REG-01 which shall be considered as intimation for composition scheme.
  • For taxpayers who have migrated from earlier tax regime shall require to intimate the same in the FORM GST CMP-01 before 1st July or 30th July and shall require to furnish the statement of stocks on which ITC is claimed in the FORM GST ITC-03 within the period of 90 days from the day on which the person commences to pay tax under this scheme.
  • Other tax payers shall require to intimate every year for opting to such scheme in FORM GST CMP-02 before the commencement of such financial year and shall require to furnish statement of stocks on which ITC is claimed in the FORM GST ITC-03 within the period of 60 days from the day on which the person commences to pay tax under this scheme.

Practical challenges of composition scheme under GST:

  • It is the general observation that the person who were under composition scheme only for the period July' 2017 to Sep'2017 and have opted out from such scheme on 1st Oct'2017 then they were made to fill the monthly returns from July' 2017 to Sep' 2017 instead of making them fill the quarterly return.
  • Such practice of making taxpayers to file monthly returns have unnecessary increased the burden of penalty for non-filling of monthly returns on time.

The author can also be reached at rakeshsarswath87@gmail.com

Disclaimer: This article is provided for information purposes only it could not be considered as legal or financial advice however you can approach to the given email address for your individual needs


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Category GST, Other Articles by - Rakesh sarswath 



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