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As all of us are aware regarding the proposed big indirect tax reform in the country in the form of GST. Based upon the Model GST Law as issued by government, I hereby made efforts to cover detailed analysis on various subject matter of proposed GST Model Law in details for our readers. Today I am discussing about the composition scheme under GST regime.

Section 8 will govern the provision of composition levy under CGST/SGST Act, 2016

Salient features of the scheme

a. Only taxable persons whose ‘aggregate turnover’ does not exceed Rs. 50 lacs in a financial year will be eligible to opt for payment of tax under the composition scheme.

b. Rate of tax shall be the rate as prescribed, but not less than one percent of the turnover during the year.

c. Tax payment under this scheme is an option available to the registered taxable person.

d. As per Section 16, Goods and/or services on which composition tax has been paid under Section 8 is not eligible for input tax credit. (Sec-16(9)(e)).

e. Applicable only for Intra-state supplies (i.e. Local Supplies within a state).The registered taxable person making Inter-state supply of goods and/or services cannot take benefits under this scheme). He has continued to be liable as a registered taxable person.

Q- If a person making import/export of good, whether he is eligible to take registration under composition scheme?

- As definition of IGST under Section 2(c) of IGST Act,2016, specify the transaction made in course of import/export ,then it is deemed to be an inter-state supply. Hence a person cannot take registration under composition scheme.

It should uniformity applicable on PAN India basis for all the registered taxable persons, having the same PAN as held by them.

Eg. If a person doing business of mobile, readymade garments , electronic under different business entity, then under this scheme is have required to take registration for his all business entity as compounding dealer.

Under this scheme, the taxable person shall not collect any tax from the recipient on supplies made by him. (i.e. the person have required to pay tax out of his own pocket).

He has also not entitled to take credit of any input tax also on the purchases of taxable supplies made by him.

A registered taxable person paying tax under the provisions of section 8 shall issue, instead of a tax invoice, a bill of supply containing such particulars as may be prescribed.

It must be noted that a taxable person cannot opt for payment of taxes under composition scheme say for supply of goods only and opt for regular scheme of payment of taxes for supply of services.

Composition scheme may be opted for by taxable persons, for supply of goods and / or services both.

It is important to note that for any tax payable under reverse charge mechanism, the option of payment under this scheme will not be available.

When the proper officer has reasons to believe that a taxable person was not eligible to pay tax under sub-section (1), then he can impose a penalty equal to the amount of tax on such person with his tax liability after giving a reasonable opportunity of being heard.

Returns under Composition Scheme:-

A registered taxable person paying tax under the provisions of section 8 of this Act shall furnish a return for each quarter or part thereof, electronically, in such form and in such manner as may be prescribed, within eighteen days after the end of such quarter.

GSTR-4 has been prescribed by the government under draft business processes an return to be filed by an compounding dealer.

Compounding dealer shall furnish the first return for the period starting from the date on which he becomes a registered taxable person till the end of the quarter in which the registration has been granted.

Registration under Composition Scheme:-

Any existing taxpayer not under Compounding scheme may opt for Compounding scheme, if eligible, only from the beginning of the next Financial Year. The application will have to be filed on or before 31st March of the previous year so that Returns can be filed accordingly.

Compounding dealer may be allowed to switch over to Normal scheme even during the year if they so want, with a condition that they cannot switch over to Compounding scheme again during the same financial year.

Input Tax Credit under Composition Scheme:

Transfer from Compounding Dealer to Normal Dealer:-

When Person ceases to pay composition tax and liable to pay tax as an regular taxable person then he is eligible to take input tax credit in respects of inputs held in stock and contained in semi finished and finished goods held in stock as on the day immediately preceding the date from which he becomes liable to pay tax under regular scheme.Sec-16(3).

Transfer from Normal Dealer to Compounding Dealer:-

When Person liable to pay tax as a regular taxable person switches over as a taxable person for paying tax under section 8,then he shall pay an amount by way of debiting in the electronic credit /cash ledger equivalent to input tax credit in respects of inputs held in stock and contained in semi- finished and finished goods held in stock as on the day immediately preceding the date of such switch over. Sec 16(12).

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