GST is the new tax regime replacing various indirect taxes prevailed earlier (VAT, Service tax and so on). GST is applicable from 01st July 2017 on supply of eligible goods as per GST law. There are various regulatory compliance to be followed by person registered under GST. Non compliance of any rules would lead to levy of penalty by the GST law. Complying with all the statutory provisions under GST is difficult for small traders and manufacturer of Goods. Keeping in mind such small traders and manufacturer of goods the government has adopted the composition scheme from earlier VAT law. The composition scheme will make compliance with tax laws hassle free for eligible businesses opting for the scheme
2) Features of composition Scheme:
It is important to understand the feature of this scheme before an eligible taxpayer opts for registration under this scheme. Following are the features of composition scheme:
- There is lesser compliance to be followed by taxpayer under this scheme i.e. quarterly returns instead of monthly returns, maintenance of books of records
- Person registered under this scheme are liable to pay tax on special rate (2%, 1% and 5%) of their turnover
- Person registered under this scheme should not issue a tax invoice since composite tax payers should not collect tax on outward supply made by them instead they can issue of Bill of Supply
- The person registered under this scheme cannot claim input tax credit on their inward purchases
- A person registered under this scheme cannot make interstate outward supply
- If a taxpayer is found not eligible to register under this scheme then the tax authorities can levy a penalty along with payment of taxes which is 100% of taxes put on him
- Tax payer registered under this scheme will have high liquidity as compared to normal taxpayers since in case of normal tax payers most of their working capital would be blocked in the input tax credit because he can availed it only if his supplier has filed the return. A composite taxpayer need not worry of his supplier filing the return as he cannot take credit and will pay tax at special rates
3) Eligibility to Opt for Composition Scheme:
As now we know the features of composition scheme, let us see which taxpayer are eligible to register under this scheme.
- Taxpayers whose aggregate turnover in the preceding financial year did not cross Rs 75 Lakhs is eligible to opt for composition scheme.
- In the case of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Himachal Pradesh the turnover limit is Rs 50 Lakhs:
(Aggregate turnover = Value of all taxable services + Exempt supplies + exports made by all persons with same PAN)
4) Persons not eligible for composition Scheme:
Following tax payers are not allowed to opt for composition scheme:
- Persons making inter-state outward supply of goods
- Supplier of services other than restaurant services
- A Casual tax payer or a non – resident taxable person
- Suppliers whose aggregate turnover has exceeded Rs 75 Lakhs in the previous financial year
- Persons supplying goods which are not taxable under GST law
- Suppliers making any supply through e-commerce operator who is required to collect tax at source under section 52
- Supplier who has purchased any goods or services from unregistered supplier unless he has paid GST on such goods or services on reverse charge basis and
- Manufacturer of ice cream, pan masala and tobacco products
5) GST Rates under composition scheme:
In Composition scheme there are only 3 rates specified for various category of registered person which are as follows:
Category of Registered person
GST Tax Rate(%)
Manufacturers(other than manufacturers of Ice cream, Pan Masala, Tobacco products)
2% (1% CGST and 1%SGST) of turnover
1% (0.5% CGST and 0.5%SGST) of turnover
5% (2.5% CGST and 2.5%SGST) of turnover
6) Invoice under Composition Scheme:
A person registered under composition scheme cannot issue a tax invoice as the composition taxpayer is not eligible to collect tax on supplies from his buyer rather tax is paid by him at special rates as mentioned above. He can issue a bill of supply in lieu of tax invoice. There is no specific format for invoice to be issued by the supplier in the composition scheme. Below is the one of the specimen format
Bill of Supply
7) Returns to be filed under Composition Scheme
In composition scheme the tax payer has to electronically file quarterly return in FORM GSTR-4 on the GSTN common portal by the 18th of the month succeeding the quarter. For example return in respect of supplies made during July-Sept is required to file the return by 18th of Oct.
8) Registration under composition scheme:
1. a) Tax payer already registered in the existing laws migrating to GST needs to electronically submit Form GST CMP-01.
b) File form GST CMP-03 containing details of stock, including purchases from unregistered persons within 60 days of the date which the option for composition levy is exercised or within such further period as may be extended by the commissioner in this behalf
2. a) If any other tax payer opts for the composition scheme must file Form GST CMP-02
b) File Form GST ITC-3 containing details of inputs lying in stock and capital goods on which ITC has been availed within 60 days from the commencement of the relevant financial year.
9) Input Tax credit on stock while opting for composition scheme:
The registered person opting to register under composition scheme will be required to pay an amount equal to the input tax credit in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date of exercise of option. The input tax credit on inputs will be proportionately calculated on the basis of corresponding invoices on which credit has been availed.
In respect of capital goods held in stock, the input credit involved in the remaining useful life in months will be computed on pro-rata basis, useful life to be taken is 5 Yrs. Say for example if capital goods has been used for 4 yrs and 1 month and the ITC is Rs 2000 then the ITC attributable to the remaining useful life would be 2000*9/12= Rs 1500.
The ITC amount determined should be identified separately for IGST, CGST and SGST. The payment can be made by debiting the electronic credit ledger if there is sufficient balance available in the credit ledger or by debiting electronic cash ledger. The balance if any under credit ledger shall lapse. As mentioned above such tax payer are liable to file Form GST ITC-3
The last day to register under composition scheme was 16th August 2017 but on 09th Sept 2017 the deadline has been extended to 30th Sept 2017. Such taxpayer will be permitted to avail benefits of the scheme from 01st Oct 2017. The tax payer based on their business model should undertake analysis and accordingly decide to opt for composition scheme.