Composition Scheme under GST

Introduction

Goods and Service Tax Act in India is set to bring many compliance burdens on persons registered under the Act. While large undertakings have the requisite resource to manage with these new requirements, small and medium industries may struggle to comply with these provisions. In order to simplify the compliances under the Act, the Government has come up with Composition Scheme under GST.  The Composition scheme was already present under the previous State VAT laws. Composition scheme is an option available to the taxpayers to pay tax at a flat rate on the fulfillment of the prescribed conditions. A person opting for Composition scheme will be able to enjoy the privileges of the scheme and will not be required to follow the compliant procedures laid down in the Act. We shall now look into the eligibility, conditions, relaxation and compliances of the Composition Scheme under the Act. Section 10 of the CGST and SGST Act talk about Composition Scheme under GST.

Eligibility

Not every person registered under the Act will be allowed to opt for the Composition Scheme. Certain eligibility criteria have been laid down under the Act. The following category of person is eligible to opt for the Composition scheme:

1. Traders
2. Manufacturers (other than Manufacturers of notified goods)
3. Hotels and Restaurants

Any person stated above shall be eligible to opt for the Composition Scheme provided that the aggregate turnover is below Rs. 75 lakhs (Rs. 50 lakhs in Special Category States)

The definition of Aggregate Turnover should be noted here. As per section 2(6) of the CGST Act, 2017, aggregate turnover includes all taxable supplies, exempt supplies, export supplies and inter-state supplies (but excludes the supplies on which tax is payable under RCM) of Persons with the same PAN.

It should be noted that the Turnover limit of Rs. 75 lakhs/50 lakhs as the case may be shall be taken on all-India basis and not for a particular state or registration.

For example, Mr. A has branches in Pune, Chennai and Bangalore registered under GST with the same PAN. The turnovers of the Pune branch, Chennai branch and Bangalore branch are Rs. 15 lakhs, Rs. 40 lakhs and Rs. 25 lakhs respectively. As per the GST law, separate registration has to be taken for each state. Thus, Mr. A will be required to take three separate registrations in the states of Maharashtra, Tamil Nadu and Karnataka. In this case the turnover of all the three branches put together comes to Rs. 80 lakhs. Hence, Mr. A will not be eligible to opt for Composition scheme since the turnover of all the persons with the same PAN exceeds Rs. 75 lakhs.

The Government has notified certain goods vide notification number “08/2017 - Central Tax”, the manufacturers of which will not be eligible to opt for the scheme. The notified goods are as follows:

Tax Rates

Conditions

A person opting for Composition scheme should follow the below conditions:

1. Should not collect tax from the Customers
2. Not eligible to take Input Tax Credit on his/her purchases

Who is not eligible to opt for the scheme?

The following category of person shall not be eligible to opt for this scheme:

1. Service providers (other than Hotels and Restaurants)
2. Person making inter-state outward supplies (inter-state purchases are allowed)
3. Supplier of goods not covered under GST
4. Person making supplies through an e-commerce operator
5. Casual taxable person and Non-resident taxpayers

Benefits of opting for Composition Scheme

A Composition dealer enjoys the following privileges:

1. Not required to maintain detailed books of account
2. Not required to file 3 monthly returns
3. Not required to issue tax invoice

How to opt for the scheme?

Existing persons registered under the earlier laws (Service Tax, Excise Law, VAT etc) will have to compulsorily migrate into GST irrespective of whether the Turnover crosses the threshold limit for registration. Such existing taxpayers will be able to opt for Composition scheme by filing application in Form GST CMP - 01 before 30th July, 2017. The persons opting for this scheme shall not have with him any goods which is purchased from an Inter-state supplier as on 30th June, 2017.

New registrants shall opt for the scheme in Form GST REG - 01.

Any registered person willing to convert to Composition Scheme can do so by filing an application in GST CMP - 02. The application has to be filed before the start of the financial year and shall be applicable for the whole year.

Issue of Invoice

A Composite dealer will not be collecting tax from his/her customers and hence will not be issuing a tax invoice. Instead a composite dealer has to issue a “Bill of Supply”. The Bill of Supply shall contain all the particulars of a tax invoice except the tax portion. The Bill of Supply issued by a Composite Dealer shall contain the words “Composite taxable person - Not eligible to collect taxes on Supplies”.

Since the Composite dealer will not charge tax in his/her invoice, persons purchasing from a composite dealer should not think that the Composite dealer is unregistered and pay tax under RCM. In fact, a Composite Dealer is a registered person under the act and hence a no RCM liability arises on any purchases from the Composite Dealer.

Composition Dealer - Returns

A Composition dealer shall file his/her return in Form GSTR - 04. The return is to be filed Quarterly between 11th and 18th of the month succeeding the end of the Quarter.

What happens when the turnover crosses the 75 lakhs limit?

Once the turnover during a year crosses the specified limit of 75 lakhs, the benefit under the scheme shall lapse. The option has to be withdrawn in form GST CMP - 04. The taxpayer shall be eligible to take input tax credit of the stock in hand as on date on which the benefit lapses. Also, the dealer will be considered a normal dealer and will be liable to collect tax from his/her customers and take input tax credit on the purchases after the option lapses.