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Detailed insight of Composition Scheme under GST

Manasa Reddy Bonam 
Updated on 09 April 2021

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What is composition levy under GST?

The Composition levy is an ‘alternative method’ of levy of tax designed for small taxpayers whose turnover is up to a prescribed limit. The composition scheme under GST will be applicable to the registered taxable person whose aggregate turnover in the preceding financial year did not exceed 75 lakhs rupees as per notification no. 08/2017-central tax, (Rs. 50 lakhs in case of few states) has an option to pay, in lieu of tax payable by him. Further, the government by notification increase the said limit of Rs. 75 lakhs to such higher amount not exceeding Rs. 1 crore as may be notified by GST council.

What is the rate of tax applicable on a composition levy?

As per Section 10(1) of CGST Act 2017 the category of registered persons, eligible for composition levy.

#

Category of registered persons

CGST rate

SGST rate

Total rate of tax

1

Manufacturers  (other than manufacturers of notified goods)

1%

1%

2%

2

Suppliers - food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption)

2.5%

2.5%

5%

3

Any other suppliers

0.5%

0.5%

1%

Which are the special category states in which the turnover limit for composition levy for central tax and state tax purpose shall be Rs.50 lakhs?

In case of following states, the aggregate turnover in the preceding financial year shall be fifty lakh rupees:

Arunachal Pradesh,

Meghalaya,

Sikkim,

Assam,

Mizoram,

Tripura

Manipur,

Nagaland,

Himachal Pradesh

Who are the persons not eligible under composition scheme?

As per Section 10 (2) of CGST Act, 2017, following persons are not eligible to opt for the composition scheme:

  1. A casual taxable person or a non- resident taxable person;
  2. Suppliers whose aggregate turnover the preceding financial year crossed Rs. 75 lakhs;
  3. 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;
  4. Supplier of services, other than restaurant service;
  5. Persons supplying goods which are not taxable under GST law;
  6. Persons making any Inter-state outward supplies of goods; (there is no restriction on procuring good from inter-state suppliers by persons opting for composition scheme)
  7. Suppliers making any supply of goods through an electronic commerce operator who is required to collect  tax at source under section 52; and
  8. A manufacturer of following goods:

#

Classification (Tariff item)

CGST rate

1

2105

Ice cream and other edible ice, whether or not containing cocoa

2

2106

Pan masala

3

24

Tobacco and manufactured tobacco substitutes

Composition levy shall be adopted uniformly by all the registered persons who are having same PAN (Permanent Account Number)

When does the composition scheme stands withdrawn?

The option available to the dealer shall stand withdrawn from the day on which his aggregate turnover exceeds Rs. 75/Rs.50 lakhs. He is required to file intimation for withdrawal from the scheme in Form GST CMP - 04 within 7 days from the date on which the threshold limit has been crossed. Any intimation or application for withdrawal in respect of any place of business in any State or Union territory shall be deemed to be intimation in respect of all other places of business registered on the same Permanent Account Number.

When will a person opting for composition levy pay tax?

A registered taxable person opting for composition levy will have to pay tax on quarterly basis before 18th of the month succeeding the quarter during which the supplies were made.

How aggregate turnover be computed for the purpose of composition?

Aggregate turnover is computed on the basis of turnover on all India basis and will include value of all taxable supplies, exempt supplies and exports made by all persons with the same PAN, but would exclude the inward supplies under reverse charge as well as Central/state/Union territory and Integrated taxes and cess.

What are the records to be maintained by the composition dealer?

A dealer registered under composition scheme is not required to maintain the records as in case of normal tax payer.

Whether the registered taxable person is eligible to claim the input tax credit on his inward supplies?

The registered taxable person is not eligible to avail the input tax credit on receipt of invoices or debit notes from the supplier for the period prior to his opting for the composition scheme. When the registered person switches over from composition scheme to normal scheme, eligible credit on the date of transition would be allowed.

Whether composition dealer is liable to issue a tax invoice?

The registered taxable person can issue a bill of supply in lieu of tax invoice.

Whether composition dealer is liable to pay tax under reverse charge mechanism?

Any tax payable under reverse charge mechanism is not covered under the composition scheme. These taxes will be liable to be paid as a normal tax payer.

What are the returns are required to be filed by the composition dealer?

As per CGST Rules, every registered taxable person under composition scheme is required to file quarterly returns in Form GSTR-4 on by the 18th of the month succeeding the quarter.

Whether composition dealer is liable to pay reverse charge liability for the input/input services received from an unregistered dealer?

The composition dealer is liable under reverse charge mechanism for the input/input services received from an unregistered person. The tax can be paid by the 18th day of month succeeding the quarter in which such supplies were received.  The intimation is to be filed electronically in FORM GST PMT - 01 or FORM GST PMT - 02. The information relating to such supplies should be shown by the composition dealer in table 4 of return in Form GSTR - 4.

What are the conditions for availing input credit on stock lying at the time of transition?

As per Section 140 (6) of CGST Act, 2017 following are the conditions which must be addressed by the registered taxable person to avail credit on input at the time of transition from composition scheme to the normal scheme:

  1. Such inputs or goods are intended to be used for making taxable supplies under GST law.
  2. The registered person was eligible for CENVAT Credit on such goods under the previous regime, however, couldn’t claim it being under composition scheme.
  3. Such goods are eligible for input tax credit under GST regime.
  4. The registered person is in possession of invoice or other prescribed documents evidencing payment of duty under the existing law in respect of inputs;
  5. Such invoices were issued within a period of 12 months from GST applicable date.

What is the treatment for input credit availed when transitioning from normal scheme to Composition Scheme?

When switching from normal scheme to composition scheme, the taxpayer shall be liable to pay an amount equal to the credit of input tax in respect of inputs held in stock on the day immediately preceding the date of such switchover. The balance of input tax credit after payment of such amount, if any lying in the credit ledger shall lapse.

What are the transition provisions applicable, if a business transits from composition scheme under current regime to regular taxation under GST?

The registered taxable person under composition scheme under the current regime will be allowed to take credit of input held in stock, or in semi-finished goods or in finished goods on the day immediately preceding the date from which they opt to be taxed as a regular tax payer.

What are the various forms applicable for Composition dealer?

#

Form

Applicability

1

Form GST CMP - 01

Intimation to pay tax under composition levy. It is applicable for persons registered under the existing law migrating on the appointed day i.e. 01.07.2017

2

Form GST CMP - 02

Intimation to pay tax under composition levy

3

Form GST CMP - 03

Intimation of details of stock on date of opting for composition levy. It is applicable for persons registered under the existing law migrating on the appointed day i.e. 01.07.2017

4

Form GST CMP - 04

Intimation/Application for Withdrawal from Composition Levy

5

Form GST CMP - 05

Notice for denial of option to pay tax under composition levy

6

Form GST CMP - 06

Reply to the notice to show cause

7

Form GST CMP - 07

Order for acceptance / rejection of reply to show cause notice

8

Form GSTR - 4

Quarterly return for registered person opting for composition levy

9

Form GSTR - 4A

Auto-drafted details for registered person opting for composition levy

What is the effective date of Composition levy?

Situation

Effective date

Persons who have been granted provisional registration and who opt for composition levy (Intimation under Rule 3(1))

The appointed date is 22nd June, 2017

Persons opting for composition levy at the time of making application for new registration in the same registration application itself (Intimation under Rule 3(2))

Effective date of registration; Intimation shall be considered only after the grant of registration and his option to pay tax under section 10 shall be effective from the effective date of registration

Persons opting for composition after obtaining registration (Intimation under Rule 3(3))

The beginning of the financial year

What are the penalties applicable on Composition dealer in case of any default in tax payment?

If the proper officer has reasons to believe that a taxable person was not eligible to pay tax under the composition scheme, 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.

Extension of due date for registration of Composition scheme up to 16th August 2017 

It has been decided to extend the time limit for filing intimation for Composition levy (filing of intimation FORM GST CMP-01) up to 16th August, 2017.


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