Composition Scheme under GST – Analysis

By | July 28, 2017
(Last Updated On: July 28, 2017)

Composition Scheme under GST

Key points about Registered person opting Composition Scheme under GST :-

Here we have addressed some of the basic queries around Composition Scheme under GST .

  • An option to small suppliers, CGST Act provides for a ‘Composition Levy’ under Section 10 of CGST Act 2017.  It gives an option to a registered person whose aggregate turnover in the preceding financial year does not exceed Rs. 75 Lakhs to pay an amount calculated at such rate prescribed instead of tax payable under normal rates.The Government has the power to increase the said limit of fifty lakh rupees upto one crore rupees, by way of a notification.
  • He shall mention the words “composition taxable person, not eligible to collect tax on supplies” at the top of the bill of supply issued by him.
  • He shall mention the words “composition taxable person” on every notice or signboard displayed at a prominent place at his principal place of business and at every additional place or places of business.
  • Composition scheme shall be effective only from the beginning of the financial year and cannot be opted in middle of the year, except for new registrations and migration cases. However Composition Scheme may be withdrawn in the middle of the year.
  • Composition dealer cannot make exports of goods or services or both because composition dealer cannot make inter-state supplies
  • Read also FAQs on Composition Levy under GST ( India )

Detailed Analysis of Composition Scheme or Compisition Levy 

The word ‘composition’ comes from the Latin componere, meaning “put together”. It is a feature of Indirect Tax laws that in order to provide a comfort to an assessee from complying with the requirement of paying tax on value addition by maintaining detail of ‘inputs’ and ‘outputs’, an option is provided to go for a put together scheme. As per the scheme, the assessee is made free from the requirement of maintaining complete details of its inputs and outputs and permits the assessee to make payment of a single put-together amount better known as ‘composition fees’

Composition Scheme under GST, a taxpayer is required to file one summarized return on quarterly basis, instead of three monthly returns as applicable for normal businesses.

AGGREGATE TURNOVER:

“aggregate turnover” means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess; [ Refer Section 2( 6) of  CGST Act 2017 ]

Confusion :- There is a certain amount of ambiguity as to whether the value of inward supplies would form part of ‘aggregate turnover’ since the definition covers all taxable supplies and excludes only inward supplies to the extent liable to tax under reverse charge mechanism.

Summary table of aggregate turnover under GST is calculated as follows:

Sr. No.ParticularsTreatment
1.Outward Taxable SuppliesIncluded
2.Outward supplies in case tax is payable under reverse charge basis by the recipientNot Included
3.Exempt Supplies (Nil rated, Wholly exempt or Non taxable)Included
4.Export of Goods or ServiceIncluded
5.Interstate SuppliesIncluded
6.Central Tax, State Tax, Union Territory Tax, Integrated tax, CessNot Included
7.Inward Supplies including inwards supplies on which tax is payable under reverse charge basis by the recipient.Not Included

Rates of Composition Levy

The exact rates of Composition Levy are yet to be prescribed, however the maximum rates are classified under the following three categories:

Rate – Not Exceeding

♦             CGST rate = 1% of turnover in case of manufacturer

♦             CGST rate = Only such service providers who are supplier of food related services (restaurant services) specified under paragraph 6(b) of Schedule II (supply, by way of or as part of any service or in any other manner whatsoever of goods, being food or any other article for human consumption of any drink (other than a lcoholic liquor for human consumption) whichare kept under composition levy at a maximum 2.5%.

♦             CGST rate = 0.5% of Turnover  in case of other suppliers

Point to be noted is that the above rates are provided in CGST Act 2017 therefore the actual pay out of composition rate will be double of the above rates i.e. either 1%, 2% or 5% bifurcated into CGST and SGST/UTGST Act..

Categories of registered personCentral

Rate

State / UTGST RateTotal

Rate

Manufacturer other than goods notified1.00%1.00%2.00%
Other Supplier like agent, Traders0.50%0.50%1.00%
Composite supply of food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption) Example: Restaurants, Eating Joints, Mess, Canteens, Outdoor Caterer, etc2.50%2.50%5.00%
Service ProviderNANANA

How to Calculate tax under Composition Scheme

Tax under composition is calculated at above rates on ‘turnover in state or turnover in union territory’ which means:

Sr. No.ParticularsIncluded in Turnover
1.Taxable SuppliesYes
2.Exempt Supplies (Nil rated, Wholly exempt or Non taxable)Yes
3.Export of Goods or ServiceYes

Eligibility for Composition Scheme under GST

Only registered person whose ‘aggregate turnover’ (aggregate of turnover in all States having same PAN) does not exceed Rs. 50.00 lakhs in the preceding financial year will be eligible to opt for payment of tax under the composition scheme.

As per Section 10(2) of the CGST Act 2017, read with the Draft Composition Rules, 2017; Option of Composition Levy is not available for:

  • Turnover Exceeds Rs 50 Lakh:- Suppliers whose aggregate turnover in the preceding Financial year is Exceeds Rs. 50 Lakhs,
  • Service providers other than supply by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration.
  • Inter State Supply of Goods :- Persons who make Inter-State supply of Goods. Thus restriction is only  outward supplies  and person opting for composition scheme can purchase (inward Supply) from Outside State,.
  • Persons engaged in supply of goods which are not leviable to GST,
  • Supply of goods through e commerce :- Persons engaged in making supply of goods through e-commerce operator who is liable to TCS under section 52
  • Manufacturer of certain goods as may be notified by the Government on the recommendations of the Council under Section 10(2) of the CGST Act 2017.
  • Non-resident taxable person or casual taxable person.

 Conditions and restrictions for Composition Scheme under GST

■  Composition Scheme for person having same PAN :- Proviso to Section 10(2) of the CGST Act 2017, places a condition that when more than one registered persons is having the same PAN, the registered person shall not be eligible to opt for the composition scheme unless all such registered persons opt to pay tax under the scheme.

               Eg: A Ltd has 4 units located in Punjab, Telangana, Madhya Pradesh and Gujarat. Each unit has to obtain separate registration in each State though all the units have same PAN. Condition is that all 4 units have to opt for composition levy or all have to pay under normal scheme.

■    Restrictions on Collection of Tax :-    Section 10(4) of the CGST Act 2017 provides than the Supplier opting for Composition levy CANNOT collect tax from any person

■    Restrictions on availment of Input Tax Credit :– Section 10(4) of the CGST Act 2017 also provides that the supplier opting for Composition levy CANNOT AVAIL Input Tax Credit (ITC).

■   Bill of Supply to be issued :-  Supplier opting for Composition Levy SHALL issue BILL OF SUPPLY as per Section 31(3)(c) of the CGST Act, 2017.

               Contents of Bill of Supply – Rule 4 of Draft Invoice Rules released in March 2017 lists out the contents of the Bill of Supply

–             Name, address and GSTIN of the supplier;

–             A consecutive serial number, in one or multiple series, containing alphabets or numerals or special characters -hyphen or dash and slash symbolised as “-” and “/”respectively, and any combination thereof, unique for a financial year;

–             Date of its issue;

–             Name, address and GSTIN or UIN, if registered, of the recipient;

–             HSN Code of goods or Accounting Code for services;

–             Description of goods or services or both;

–             Value of supply of goods or services or both taking into account discount or abatement, if any; and

–             Signature or digital signature of the supplier or his authorized representative

■            Rule 3 of the Draft Composition Rules, 2017  provides for following restrictions:-

○            Goods held in stock by him on appointed date have not been purchased in the course of inter-State trade or received from branch outside State or imported from place outside India or from his agent or principal situated outside India.

○            Goods held in stock should NOT have been purchased from an unregistered person OR, if purchased, pay tax under reverse charge under section 9 (4) of CGST Act.

○            He shall pay tax under reverse Charge under section 9 (3) or  (4) of CGST Act. in case of any Purchases from Unregistered Persons

○            On top of ‘Bill of Supply’, he shall mention “composition taxable person, not eligible to collect tax on supplies’

○            On every Notice or Signboard at a prominent place of Business he shall mention the words “composition taxable person” on every notice or signboard displayed at a prominent place at his principal place of business and at every additional place or places of business.

Procedure to Opt for Composition Levy

OptionProcedureEffective Date
Taxable Person migrating from existing registration to GST registration (all existing persons who want to opt composition under GST)Exercising Option in Form GST CMP 01 prior to appointed date or within 30 days after the appointed dateFrom the appointed date.
Taxable Person obtaining new registration under GST lawsSuch option can be exercised at the time of obtaining registration under Section 22 in Part B of Form GSTREG-1From date of registration
Taxable Person switching from normal levy in one FY to composition scheme in next FYSuch option can be exercised by filing intimation in Form GST CMP 02 prior to commencement of the year for which the option to pay tax under composition scheme is exercised.From the beginning of the financial year
Note: Composition scheme once granted, the eligibility would be valid lifetime unless the permission is cancelled or is withdrawn or the person becomes eligible for this scheme

In Cases of Persons Migrated to GST from existing Laws:

All persons who have migrated to GST and who wish to opt for Composition Levy shall submit Form GST CMP-1 PRIOR to appointed date but not later than 30 days

Furnish GST CMP-03 containing Details of Stock Including Purchases from Unregistered Persons on day preceding the day from which he opts for Composition levy WITHIN 60 days

In cases of other Persons:

Any Supplier who opts for Composition Levy shall file Form GST CMP-02 prior to commencement of the financial year

File Form GST ITC-3 containing details of Inputs lying in stock and Capital Goods on which ITC has been availed.

Switching over  From Normal Levy to Composition Levy and from Composition Levy to Normal 

Switching over from Normal Levy (GST Regime) to Composition Scheme (GST Regime)

– Registered person shall pay an amount equivalent to the credit of input tax in respect of inputs held in stock and inputs contained in semi- finished or finished goods held in stock by way of debit in electronic credit ledger or electronic cash ledger.

– On capital goods as reduced by such percentage as may be prescribed.

– On the day immediately preceding the date of exercising composition option

– Any balance lying after payment of such amount shall be lapse.

– Furnish a statement in FORM GST ITC-3 within sixty days from the commencement of the relevant financial year.

REVERSAL OF INPUT TAX CREDIT (DETAILS IN FORM GST ITC-03)

For inputs lying in stock, and inputs contained in semi-finished and finished goods lying in stock

– The ITC shall be calculated proportionately on the basis of corresponding invoices on which credit has been availed by the registered taxable person on such inputs

For capital goods lying in stock

– The input tax credit involved in the remaining residual life in months shall be computed on pro- rata basis taking the residual life as five years;

Illustration

Capital goods have been in use for 4 years, 6 month and 15 days.

The residual remaining life in months= 5 months ignoring a part of the month

Input tax credit taken on such capital goods=Ç

Input tax credit attributable to remaining residual life=C multiplied by 5/60

– The amount determined above shall form part of the output tax liability of the registered person and the details of the amount shall be furnished in FORM GST ITC-03

– The amount shall be determined separately for input tax credit of IGST and CGST.

– Where the tax invoices related to the inputs lying in stock are not available, the registered person shall estimate the amount based on the prevailing market price of goods on the effective date of occurrence of any of the events i.e opt for composition scheme & taxable supply becomes wholly exempt as the case may be.

Switching over from Composition Scheme (GST Regime) to Normal Levy (GST Regime)

– A person shall be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock and on capital goods.

– On the day immediately preceding the date from which he becomes liable to pay tax u/s Section 9

– Input tax credit cannot be availed in respect of any supply of goods or services or both to him after the expiry of 1 Year from the date of issue of tax invoice relating to such supply

– The ITC on capital goods shall be claimed after reducing the tax paid on such capital good by 5% per quarter of year or part thereof from the date of invoice or such other documents.

– The registered person shall make a declaration in FORM GST ITC-01 to the effect that he is eligible to avail of ITC.

– The declaration shall specify the details relating to the input lying in the stocks, inputs contained in semi-finished or finished goods lying in stocks or as the case may be capital goods.

– The declaration shall be duly certified by a practicing chartered accountant or cost accountant if aggregate value of claim on account of central tax, state tax, integrated tax & union territory tax exceeds Rs.2.00 lakhs.

Withdrawal from Composition Levy

The option availed by a registered person shall lapse with effect from the day on which his aggregate turnover during a financial year exceeds fifty lakh rupees.

Voluntary Withdrawal

On Non-compliance of conditions under Section or Rules or in case of Voluntary withdrawal ,registered person shall start issuing Tax Invoice and pay tax under normal provisions and also shall file GST CMP-04 for withdrawl of option within 7 days

Denial of Option by Proper Officer

– Where the proper officer has reasons to believe that the registered person was not eligible to pay tax under composition scheme or has contravened the provisions of the Act or these rules, he may issue a notice to such person in FORM GST CMP-05 to show cause as to why option to pay tax under composition scheme should not be denied.

– Registered person shall file reply in FORM GST CMP-06 within fifteen days of the receipt of such notice.

– Within thirty days receipt of such reply, the proper officer shall issue an order in FORM GST CMP-07, either accepting the reply, or denying the option to pay tax under composition scheme from the date of option or from the date of the event concerning such contravention, as the case may be.

Action if Composition Scheme withdrawn or denied 

Registered dealer shall furnish a statement in FORM GST ITC-01 containing details of the stock of inputs and inputs contained in semi-finished or finished goods held in stock by him on the date on which the option is withdrawn or denied (as the case may be), within 30 days, from the date from which the option is withdrawn or from the date of order passed in FORM GST CMP-07, as the case may be.

 Any intimation or application for withdrawal or denial of the option to pay tax under composition scheme in respect of any place of business in any State or Union territory shall be deemed to be an intimation in respect of all other places of business registered on the same PAN.

 Returns  for Composition Scheme under GST

■            Section 39(2) of the CGST Act, 2017, read with Rule 4 of the Draft Return Rules 2017 provides that the Persons opting for Composition Levy have to file Returns electronically in Form GSTR-4 on Quarterly Basis by 18th of the month following the quarter.

               Contents of the Return under Composition Scheme of GST

(a)         Invoice wise inter-State and intra-State inward supplies received from registered and un-registered persons;

(b)          Import of goods and services made;

(c)          Consolidated details of outward supplies made; and

(d)         Debit and credit notes issued and received, if any

■   Sectio 29(2)(b) of the CGST Act 2017 provides that non-filing of return for 3 consecutive tax periods (3 Quarters) would result in Cancellation of Registration by Proper Officer.

SECTIONPerson LiableFORMDue date for payment of taxDue Date for filing of returnPeriodicity

 Section 39(2)Composition DealersGSTR-4On or before the due date of filing of return i.e 18thWithin 18th days after end of such quarterQuarterly
 Section 39(2)Composition DealersGSTR-4AAuto-populated details of inward supplies made available to the recipient registered under composition scheme on the basis of FORM GSTR-1 furnished by the supplier.
Section 44(1)Composition DealersGSTR-9A31st December of next fiscal yearAnnual

Challenge in Transition Year for Composition Dealer

Summaries table of availability of Input Tax Credit for existing dealer at the time of migration

From before GST/ Existing RegimeTo GST RegimeInput Tax Credit on Stock
Composition SchemeNormal SchemeYes (Subject to conditions)
Normal SchemeComposition SchemeNo
Composition SchemeComposition SchemeNo

DETAILS TO BE FURNISHED IN FORM CMP-03 WITHIN 60 DAYS FROM THE APPOINTED DAY BY THE PERSON WHO OPTS FOR COMPOSITION SCHEME AT THE TIME OF MIGRATION

– Stock of purchases made from registered person under the existing law

Sr. No.GSTINName of the supplierBill/ Invoice No.DateValue of StockVATCentral ExciseService TaxTotal
1.
2.
3.
Total

– Stock of purchases made from unregistered person under the existing law

Sr. No.Name of unregistered personAddressBill/ Invoice No.DateValue of StockVATCentral ExciseService TaxTotal
Total
Details of tax paid Amount

Debit Entry No.

Migration from Composition Scheme (Before GST /Existing Regime) to Normal Levy ( under GST )

– A registered person shall be entitle to take credit of eligible duties* in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day. (Not on Capital Goods)

– Every registered person shall submit an application within 60 days from the appointed day in Form GST TRAN-1 shall specify separately the amount of tax or duty to the credit said person shall be entitled and shall also specify separately details of stocks held on the appointed day

– The registered person shall subject to following condition is eligible to avail the above credit:-

  • Such inputs or goods are used or intended to be used for making taxable supplies under this Act
  • Registered person is not paying tax under Section 10  composition scheme.
  • The said registered person is eligible for input tax credit on such inputs under this Act;
  • The said registered person is in possession of invoice or other prescribed documents evidencing payment of duty under the existing law in respect of such inputs;
  • Such invoices or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day; and

* Eligible Duties

– The additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957;

– The additional duty leviable under sub-section (1) of section 3 of the Customs Tariff Act, 1975;

– The additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act, 1975;

– The additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textile and Textile Articles) Act, 1978;

– Te duty of excise specified in the First Schedule to the Central Excise Tariff Act, 1985;

– The duty of excise specified in the Second Schedule to the Central Excise Tariff Act, 1985;

– The National Calamity Contingent Duty leviable under section 136 of the Finance Act, 2001

Note:- Credit of value added tax in case State of Goods & Service Tax Act

Migration from Normal Levy/Composition Scheme (Before GST /Existing Regime) to Composition Scheme (under GST Regime)

– A registered person is not eligible to be carried forward input tax credit carried forward in the return.

– File an intimation in Form GSTCMP-01 to opt for composition scheme, prior to appointed day but not later than 30 days after the appointed day.

– Where the intimation in FORM GST CMP-01 is filed after the appointed day, the registered person shall not collect any tax from the appointed day but shall issue bill of supply for supplies made after the said day.

– There is no specific provision in GST law requiring the tax payer to pay/debit any tax credit (Excise, CVD, SAD, additional excise duty under central law and VAT under state laws, etc.) involved in inputs, inputs contained in semi-finished or finished goods as on the appointed date.

Conditions: As per Rule 3(b) of Draft GST Composition Scheme Rules :- Goods in stock on transition date must not have been purchased:

  • In the course of inter-State trade or commerce or
  • Imported from a place outside India or
  • Received from his branch situated outside the State or
  • From his agent or principal outside the State.

Penalty Provisions for wrong availment of Composition Scheme 

If officer has reason to believe that composition dealer has wrongly availed benefit of this scheme in addition to any tax payable under the provisions under the provisions of the act, be liable to penalty and the provisions of Section 73  or Section 74  apply for determination of tax & penalty

Summary of forms related to Composition Scheme under GST 

No.FORMParticulars
1.FORM GST CMP-1

(Migration)

Intimation for composition levy by a person; who has been granted provisional registration and who opts to pay tax under section 10 i.e. Composition Levy (prior to appointed day but not later than 30 days from the appointed day)
2.FORM GST CMP-02

(Opt for composition scheme)

Intimation for composition levy by a registered person who opts to pay tax under section 10 i.e. Composition Levy

(prior to the commencement of the financial year for which option to pay tax under this scheme exercise)

3.FORM GST CMP-03

(Migration)

Details of stock including the inward supply of goods received from unregistered persons to be provided by a person who has been granted provisional registration adopts pay tax under composition levy (Migration)
4.FORM GST CMP-04Application for withdrawal from the composition scheme when ceases to satisfy any of the condition of the composition scheme.

Application for withdrawal from the composition scheme who intends to withdraw from the composition scheme

5.FORM GST CMP-05Show Cause Notice for denying the option to pay tax under Composition levy by the officer (Reason to believe that not eligible to pay tax u/s 10 or contravened the provision of the Act or these rules)
6.FORM GST CMP-06Reply to Show Cause Notice
7.FORM GST CMP-07Order for accepting or denying the option to pay tax under Composition levy upon receipt of reply to SCN

FAQ on Composition Scheme under GST by CBEC

Following are the FAQ on Composition scheme as per Chapter 1 of  FAQs on Overview of Goods and Services Tax (GST) released by CBEC on 31.03.2017

Q 19. What are the benefits available to small tax payers under the GST regime?

Ans. Tax payers with an aggregate turnover in a financial year up to [Rs.20 lakhs & Rs.10 Lakhs for NE and special category states] would be exempt from tax. Further, a person whose aggregate turnover in the preceding financial year is less than Rs.50 Lakhs can opt for a simplified composition scheme where tax will payable at a concessional rate on the turnover in a state.

[Aggregate turnover shall include the aggregate value of all taxable supplies, exempt supplies and exports of goods and/or services and exclude taxes viz. GST.] Aggregate turnover shall be computed on all India basis. For NE States and special category states, the exemption threshold shall be [Rs. 10 lakhs]. All taxpayers eligible for threshold exemption will have the option of paying tax with input tax credit (ITC) benefits. Tax payers making inter-State supplies or paying tax on reverse charge basis shall not be eligible for threshold exemption.

Q 23. What is the scope of composition scheme under GST?

Ans. Small taxpayers with an aggregate turnover in a preceding financial year up to [Rs. 50 lakhs] shall be eligible for composition levy. Under the scheme, a taxpayer shall pay tax as a percentage of his turnover in a state during the year without the benefit of ITC. The floor rate of tax for CGST and SGST/UTGST shall not be less than [1% for manufacturer & 0.5% in other cases; 2.5% for specific services as mentioned in para 6(b) of Schedule II viz Serving of food or any other article for human consumption]. A tax payer opting for composition levy shall not collect any tax from his customers. The government may increase the above said limit of 50 lakhs rupees to up to one crore rupees, on the recommendation of GST Council.

Tax payers making inter- state supplies or making supplies through ecommerce operators who are required to collect tax at source shall not be eligible for composition scheme.

Q 24. Whether t h e composition scheme will be optional or compulsory?

Ans. Optional.

[ Following are the FAQ on Composition scheme as per Chapter 2 of FAQs on Levy of and Exemption from Tax under GST  released by CBEC on 31.03.2017 ]

Q13.  What is the threshold for opting to pay tax under the composition scheme?

Ans. The threshold for composition scheme is Rs. 50 Lakhs of aggregate turnover in the preceding financial year. The benefit of composition scheme can be availed up to the turnover of Rs. 50 Lakhs in current financial year.

Q 14. What are the rates of tax for composition scheme?

Ans. There are different rates for different sectors. In normal cases of supplier of goods (i.e. traders), the composition rate is 0.5 % of the turnover in a State or Union territory. If the person opting for composition scheme is manufacturer, then the rate is 1% of the turnover in a State or Union territory. In case of restaurant services, it is 2.5% of the turnover in a State or Union territory. These rates are under one Act and same rate would be applicable in the other Act also. So, effectively, the composition rates (combined rate under CGST and SGST/UTGST) are 1%, 2% and 5% for normal supplier, manufacturer and restaurant service respectively.

Q15. A person availing composition scheme during a financial year crosses the turnover of 50 Lakhs during the course of the year i.e. say he crosses the turnover of Rs.50 Lakhs in December? Will he be allowed to pay tax under composition scheme for the remainder of the year i.e. till 31St March?

Ans. No. The option availed shall lapse from the day on which his aggregate turnover during the financial year exceeds Rs.50 Lakhs. [section 10 (3) of CGST Act 2017 ]

Q16. Will a taxable person, having multiple registrations, be eligible to opt for composition scheme only for a few of registrations?

Ans. All registered persons having the same Permanent Account Number (PAN) have to opt for composition scheme. If one registered person opts for normal scheme, others become ineligible for composition scheme.

Q17. Can composition scheme be availed of by a manufacturer and a service supplier?

Ans. Yes, a manufacturer can opt for composition scheme generally. However, a manufacturer of goods, which would be notified on the recommendations of the GST Council, cannot opt for this scheme. This scheme is not available for services sector, except restaurants.

Q18. Who are not eligible to opt for composition scheme?

Ans. Broadly, five categories of registered person are not eligible to opt for the composition scheme. These are:

(i) supplier of services other than supplier of restaurant service;

(ii) supplier of goods which are not taxable under the CGST Act/SGST Act/UTGST Act

(iii) an inter-State supplier of goods;

(iv) person supplying goods through an electronic commerce operator;

(v) manufacturer of certain notified goods.

Q19. Can the registered person under composition scheme claim input tax credit?

Ans. No, registered person under composition scheme is not eligible to claim input tax credit.

Q20. Can the customer who buys from a registered person who is under the composition scheme claim composition tax as input tax credit?

Ans. No, customer who buys goods from registered person who is under composition scheme is not eligible for composition input tax credit because a composition scheme supplier cannot issue a tax invoice.

[ Note – A taxable person paying taxes under composition scheme is not entitled to collect taxes from the recipient in terms of section 10(4) of the CGST Act, 2017. Accordingly, recipient can not  claim input tax credit. ]

Q21. Can composition tax be collected from customers?

Ans. No, the registered person under composition scheme is not permitted to collect tax. It means that a composition scheme supplier cannot issue a tax invoice.

Q22. How to compute ‘aggregate turnover’ to determine eligibility for composition scheme?

Ans. The methodology to compute aggregate turnover is given in Section 2(6). Accordingly, ‘aggregate turnover’ means value of all outward supplies (taxable supplies+exempt supplies+exports + inter-state supplies) of a person having the same PAN and it excludes taxes levied under central tax (CGST), State tax (SGST), Union territory tax (UTGST), integrated tax(IGST) and compensation cess. Also, the value of inward supplies on which tax is payable under reverse charge is not taken into account for calculation of ‘aggregate turnover.

Q23. What are the penal consequences if a person opts for the composition scheme in violation of the conditions?

Ans. If a taxable person has paid tax under the composition scheme though he was not eligible for the scheme then the person would be liable to penalty and the provisions of Section 73 or Section 74 shall be applicable for determination of tax and penalty.

[ Note :Thus  Following are the consequence for non-compliance with the conditions specified therein:

1. shall be liable to pay additional taxes at the rates applicable to regular taxable persons;
2. shall be liable to penalty; and
3. the amount of tax and penalty shall be recovered in terms of Section 73 & Section 74  of CGSt Act, 2017. ]

[ Following are the FAQ on Composition scheme as per Chapter 3  FAQs on Registration under GST released by CBEC on 31.03.2017 ] 

Q25. Can the proper Officer Cancel the Registration on his own?

Ans. Yes, in certain circumstances specified under section 29(2) of the CGST/SGST Act the proper officer can cancel the registration on his own. Such circumstances include contravention of any of the prescribed provisions of the CGST Act or the rules made there under, not filing return by a composition dealer for three consecutive tax periods or non furnishing of returns by a regular taxpayer for a continuous period of six months, and not commencing business within six months from the date of voluntary registration. However, before cancelling the registration, the proper officer has to follow the principles of natural justice. (proviso to Section 29(2)(e)) .

[ Following is the FAQ on Composition scheme as per Chapter  7 FAQs on Payment of Tax under GST released by CBEC on 31.03.2017 ]

Q 6. When is payment of taxes to be made by the Supplier?

Ans. Payment of taxes by the normal tax payer is to be done on monthly basis by the 20th of the succeeding month. Cash payments will be first deposited in the Cash Ledger and the tax payer shall debit the ledger while making payment in the monthly returns and shall reflect the relevant debit entry number in his return. As mentioned earlier, payment can also be debited from the Credit Ledger. Payment of taxes for the month of March shall be paid by the 20th of April. Composition tax payers will need to pay tax on quarterly basis

[ Following are the FAQ on Composition scheme as per Chapter   10  FAQs on Input Tax Credit under GST  released by CBEC on 31.03.2017 ] 

Q 1. What is input tax?

Ans. Input tax means the central tax (CGST), State tax (SGST), integrated tax (IGST) or Union territory tax (UTGST) charged on supply of goods or services or both made to a registered person. It also includes tax paid on reverse charge basis and integrated tax goods and services tax charged on import of goods. It does not include tax paid under composition levy.

Q 24. A person paying tax under compounding scheme crosses the compounding threshold and becomes a regular taxable person. Can he avail ITC and if so from what date?

Ans. He can avail ITC in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock and on capital goods (reduced by prescribed percentage points) on the day immediately preceding the date from which he ceases to be eligible for composition scheme. The manner of calculation of eligible credit would be provided by rules.

Q 28. What would happen to the input tax credit availed by a registered person who opts for composition scheme or where the goods or services or both supplied by him become wholly exempt?

Ans. The registered person has to pay an amount equal to the input tax credit in respect of stocks held on the day immediately preceding the date of exercise of option or date of exemption. In respect of capital goods, the payable amount would be calculated by reducing by a prescribed percentage point. The payment can be made by debiting electronic credit ledger, if there is sufficient balance in the credit ledger, or by debiting electronic cash ledger. If any balance remains in the credit ledger, it would lapse.

Q 29. Is there any restriction on period for availment of ITC?

Ans. In cases of new registration, change from composition to normal scheme, from exempt to taxable supplies, the concerned person cannot avail ITC after the expiry of one year from the date of issue of tax invoice relating to such supply.

[ Following are the FAQ on Composition scheme as per Chapter   12  GST- FAQs on Returns Process & matching of Input Tax Credit  released by CBEC on 31.03.2017  ]

Q 2. Who needs to file Return in GST regime?

Ans. Every person registered under GST will have to file returns in some form or other. A registered person will have to file returns either monthly (normal supplier) or quarterly basis (Supplier opting for composition scheme). An ISD will have to file monthly returns showing details of credit distributed during the particular month. A person required to deduct tax (TDS) and persons required to collect tax (TCS) will also have to file monthly returns showing the amount deducted/collected and other details as may be prescribed. A non-resident taxable person will also have to file returns for the period of activity undertaken.

Q 9. Does the taxable person have to feed anything in the GSTR-2 or everything is auto-populated from GSTR-1?

Ans. While a large part of GSTR-2 will be auto-populated, there are some details that only recipient can fill like details of imports, details of purchases from non-registered or composition suppliers and exempt/non-GST/nil GST supplies etc.

Q 13. Do tax payers under the composition scheme also need to file GSTR-1 and GSTR-2?

Ans. No. Composition tax payers do not need to file any statement of outward or inward supplies. They have to file a quarterly return in Form GSTR-4 by the 18th of the month after the end of the quarter. Since they are not eligible for any input tax credit, there is no relevance of GSTR-2 for them and since the credit of tax paid under Composition Levy is not eligible, there is no relevance of GSTR-1 for them. In their return, they have to declare summary details of their outward supplies along with the details of tax payment. They also have to give details of their purchases in their quarterly return itself, most of which will be auto populated.

Q 16. Which type of taxpayers need to file Annual Return?

Ans. All taxpayers filing return in GSTR-1 to GSTR-3, other than ISD’s, casual/non-resident taxpayers, taxpayers under composition scheme, TDS/TCS deductors, are required to file an annual return. Casual taxpayers, non- resident taxpayers, ISDs and persons authorized to deduct/collect tax at source are not required to file annual return.

[ Following is the FAQ on Composition scheme as per Chapter   20   FAQs on Offences & Penalties, Prosecution & Compounding under GST  released by CBEC on 31.03.2017 ] 

Q 7. What is the penalty prescribed for a person who opts for composition scheme despite being ineligible for the said scheme?

Ans. Section 10(5) provides that if a person who has paid under composition levy is found as not being eligible for compounding then such person shall be liable to penalty to an amount equivalent to the tax payable by him under the provisions of the Act i.e. as a normal taxable person and that this penalty shall be in addition to the tax payable by him.

[ Following is the FAQ on Composition scheme as per Chapter   24  FAQs on Transitional Provisions under GST  released by CBEC on 31.03.2017 ]

Q 1. Will CENVAT credit (or VAT credit) carried forward in the last return prior to GST under existing law be available as ITC under GST?

Ans. A registered person, other than a person opting to pay tax under composition scheme, shall be entitled to take credit in his electronic credit ledger the amount of CENVAT (or VAT credit) credit carried forward in the return of the last period before the appointed day, subject to the conditions stated therein. (Section 140(1) of the CGST/SGST Act)

Q 8. A registered person has excess ITC of Rs 10, 000/- in his last VAT return for the period immediately preceding the appointed day. Under GST he opts for composition scheme. Can he carry forward the aforesaid excess ITC to GST?

Ans. The registered person will not be able to carry forward the excess ITC of VAT to GST if he opts for composition scheme – Section 140(1).

Common FAQ on Composition Scheme under GST

 

(1)         Should the supplier opting for Composition Levy file the intimation every year?

Need Not file intimation every year

(2)          What is the penalty prescribed for a person who opts for composition scheme despite being ineligible for the said scheme?

  • Section 10(5) of CGST Act provides that if a person who has paid under composition levy is found as not being eligible for compounding then such person shall be liable to penalty for an amount equivalent to the tax payable by him under the provisions of the Act, i.e., as a normal taxable person and that this penalty shall be in addition to the tax payable by him. Such Penalty will not be levied without giving a Show Cause Notice to the composition dealer.
  • The provisions of Section 73 or Section 74 shall apply  mutatis mutandis,
    • Section 73 . Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason other than fraud or any wilful misstatement or suppression of facts.
    • Section 74 : -Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any wilful misstatement or suppression of facts.

(3)          Can the customer who buys from a registered person who is under the composition scheme claim composition tax as input tax credit?

  • No, customer who buys goods from registered person who is under composition scheme is not eligible for composition input tax credit because a composition scheme supplier cannot issue a tax invoice.

(4)         Mr. A, a registered person, was paying tax under composition scheme upto 30th July, 2017. However, w.e.f 31st July, 2017, Mr. A is liable to pay tax under regular scheme. Is he eligible for ITC?

  • Mr. A is eligible for input tax credit on inputs held in stock and inputs contained in semi-finished or finished goods held in stock and capital goods (reduced by such percentage points as may be prescribed) as on 30th July, 2017.

(5)         What would happen to the input tax credit availed by a registered person who opts for composition scheme or where the goods or services or both supplied by him become wholly ?

→           The registered person has to pay an amount equal to the input tax credit in respect of stocks held on the day immediately preceding the date of exercise of option or date of exemption. In respect of capital goods, the payable amount would be calculated by reducing by a prescribed percentage point. The payment can be made by debiting electronic credit ledger, if there is sufficient balance in the credit ledger, or by debiting electronic cash ledger. If any balance remains in the credit ledger, it would lapse.

(6)        Is there any restriction on period for availment of ITC?

→           In cases of new registration, change from composition to normal scheme, from exempt to taxable supplies, the concerned person cannot avail of ITC after the expiry of one year from the date of issue of tax invoice relating to such supply.

(7) Does a Composition Dealer must maintain detailed records?

Ans. No, a dealer registered under composition scheme is not required to maintain detailed records as in the case of a Normal Taxpayer.

(8)  Does a Composition Dealer have option to avail Input Tax Credit?

Ans. No, a Composition Dealer is not allowed to avail input tax credit of GST paid to their supplier.

(9) Can a Composition Dealer issue Tax Invoice?

Ans. No, since composition dealer is not allowed to avail input tax credit, such dealer cannot issue a tax invoice as well. He has to issue Bill of Supply as per Section 31(3)(c) of the CGST Act, 2017.

(10) Can a Composition Dealer collect composition tax separately?

Ans. No, Composition Dealer is not allowed to collect composition tax from the buyer.

 

 

Should GST Composition Scheme be opted ?

GST Composition Scheme

Disclaimer 

This Article is based on The Central Goods and Services Tax Act , 2017; Composition Rules, 2017 put up for public comments on 31.03.2017 and Frequently Asked Questions on GST 2nd edition released by the CBEC on 31.03.2017. The provisions and procedure may undergo change after the final legislations.

Composition Scheme under GST - Analysis

 

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