2018-08-08 01:14:03GST CenterEnglishTo help small business owners, government created GST composition scheme. If your company is eligible, use the scheme to enjoy easy,...https://quickbooks.intuit.com/in/resources/in_qrc/uploads/2018/08/business-owner-reviews-GST-composition-scheme-eligibility.jpghttps://quickbooks.intuit.com/in/resources/gst-center/gst-composition-scheme-everything-you-need-to-know/GST Composition Scheme: Everything you need to know

GST Composition Scheme: Everything you need to know

12 min read

The GST law provides an option to small businesses to avail the benefit of Composition Scheme under section 10 of CGST act, 2017. The objective behind introducing the Composition Scheme under GST is to bring simplicity and reduce compliance for small taxpayers.

Lets understand what is Composition Scheme, provisions pertaining to the scheme and the latest amendments brought about by the GST Council for better implementation of the scheme.

Composition Scheme Under GST

As per section 10 of the CGST act, 2017 read with chapter 2 of CGST Rules, 2017, a registered taxable person having an aggregate annual turnover of upto Rs. 1.5 crores in case of goods and restaurant services and Rs. 50 lakhs in case of services other than restaurant services in the previous financial year can opt for this scheme.

However, if your business operates in a special category state other than Jammu and Kashmir and Uttarakhand, the government is yet to decide the turnover limit for it following the 32nd GST Council meeting.

The benefits availed by the small taxpayers registered under the Composition Scheme are as follows:

  • A composition dealer pays a fixed percentage of his aggregate turnover as tax to the government. This is quite less as compared to the tax paid by a normal taxpayer registered under GST
  • Such a tax needs to be paid on a quarterly basis by a Composition Dealer via form GST CMP – 08. This is unlike the tax paid by a normal taxpayer on a monthly basis
  • The composition dealer need not maintain elaborate accounts and records
  • A composition dealer needs to file simple annual return in form GSTR – 4. This is unlike a normal taxpayer who has to file two monthly statements including GSTR – 1 and GSTR – 3B along with annual return in GSTR – 9.

Although, a composition dealer can avail the above benefits, he cannot issue a taxable invoice under the GST law. Also, a composition dealer can neither collect GST from his customers nor he can claim ITC on his purchases.

How to Calculate Aggregate Turnover?

Since, aggregate turnover is an important qualifying factor for GST Composition Scheme, it is important to know what constitutes aggregate turnover. Aggregate turnover is calculated on the basis of aggregate supplies made by a person having a same PAN. It is the sum total of all the outward supplies that fall under the following four categories:

  • Taxable supplies
  • Exempt supplies
  • Exports of goods or services
  • Inter state supplies

However, when you add the value of all these supplies, you do not have to include the taxes and cess you paid for them. In addition to this, you should not include the value of inward supplies on which tax is paid by a person on reverse charge basis.

Note: The Composition Scheme for service providers was introduced by the GST Council in its 32nd GST meeting. Thus, to avail benefit under the scheme, service providers other than the restaurant owners can avail the benefit of the scheme if their aggregate annual turnover is up to Rs. 50 lakhs in the previous financial year.

Composition Scheme Applicability

Apart from few exceptions, all registered taxable persons whose aggregate annual turnover is up to Rs. 1.50 crores in case of goods and restaurant services and Rs. 50 lakhs in case of supply of services other than the restaurant services are eligible to opt for this scheme. However, following are the list of taxable persons who are not eligible to opt for the Composition Scheme:

  • A Casual taxable person. Such a person is the one who occasionally undertakes supplies in a state or union territory where he has no fixed place of business
  • Non Resident taxable person. Such a person is the one who occasionally undertakes supplies but has no fixed place of business or residence in India
  • Person engaged in offering inter -state supply of goods.
  • A person supplying non – taxable goods, that is the goods that are not taxable under the GST law
  • Person selling goods through an electronic commerce operator who has to collect tax collected at source as required by section 52 of the CGST act.
  • A person who has purchased goods from an unregistered supplier and he pays tax under reverse charge mechanism.
  • Person engaged in manufacturing of the following goods:
    • Ice Cream and other edible ice whether or not containing cocoa (tariff item – 21050000)
    • Pan Masala (Tariff item – 21069020)
    • Tobacco and manufactured tobacco substitutes (Tariff item – 24)

GST Registration Under Composition Scheme

In order to opt for the Composition Scheme it is mandatory for a taxpayer to register under the GST law. Accordingly, the process to register for the composition scheme is divided into three categories:

(I) Procedure for Businesses Registered Under Indirect Tax Regime Prior to GST

In case a business is already registered under any of the indirect tax laws prior to the implementation of GST then such a business owner would be provided with a provisional certificate of registration. In case such a person wants to opt for composition scheme, he must necessarily intimate the tax authorities regarding the same. Such an intimation must be filed electronically in for GST CMP – 01 on the common portal. Furthermore, this intimation must be filed either before 1st July, 2017 or within 30 days from 1st July, 2017. However, if the taxpayer delays such a filing, such a business owner would not be allowed to GST or issue bill of supply. Once the business owner files the intimation in the prescribed form, he also needs to furnish details regarding the stock held by him as well as the inward purchases made from unregistered persons in form GST CMP – 03. Such a form needs to be filed within 60 days from the date on which the business owner opts for the composition scheme.

(II) Procedure for Businesses Registering Under GST for the First Time

In case a person is not registered under any of the indirect tax laws that existed prior to GST but applies for GST registration for the first time, then such a person must file form GST REG – 01. Such a person needs to select ‘Registration as Composite Business Owner in part B of the said form as per section 10 of the CGST act.

(III) Procedure for Businesses Already Registered Under GST

In case a person is already registered under the GST law but wants to transit from being a normal taxpayer to a composite dealer, such a person needs to file an electronic intimation in form GST CMP – 08. Such an intimation must be filed prior to the commencement of the financial year for which the option to pay tax under composition scheme is exercised. Besides this, such a person also needs to furnish details of ITC related to inputs, semi-finished or finished goods held in stock in form GST ITC – 03. Such a form needs to be filed within 90 days from the commencement of the relevant financial year.

Furthermore, there are taxpayers who are registered in more than one state under a single PAN but now want to opt for composition scheme under GST. Such taxpayers can also opt for the composition scheme provided they meet all the conditions mandatory to be registered under the scheme. Also, such taxpayers cannot choose to opt for the composition scheme in one state and not in other states. Additionally, if even one of the registered persons under the same PAN for a given state files an intimation to withdraw from the scheme or denies to opt for the scheme, then the same shall be applicable to all the registered persons under the same PAN.

Composition Scheme GST Rate

Current Tax Rates

Type of BusinessCGSTSGSTTotal
Manufacturer0.5%0.5%1%
Supplier of Food and Drinks (Restaurant Service)2.5%2.5%5%
Traders (Other Suppliers)0.5%0.5%1%
Service Providers other than restaurant service providers0.5%0.5%1%
Note: Composition taxpayers may supply services of value not exceeding 10% of turnover in a state or union territory in the preceding financial year or Rs. 5 lakhs whichever is higher
Supplier of services other than restaurant services and Mixed Suppliers (supplying both goods and services)3%3%6%

Composition Scheme GST Rates as per CGST Amendment Act, 2018 dated 30th August, 2018

Type of BusinessCGSTSGSTTotal
Manufacturer0.5%0.5%1%
Supplier of Food and Drinks (Restaurant Service)2.5%2.5%5%
Traders (Other Suppliers)0.5%0.5%1%
Service Providers other than restaurant service providers0.5%0.5%1%
 

Note: Composition taxpayers may supply services of value not exceeding 10% of turnover in a state or union territory in the preceding financial year or Rs. 5 lakhs whichever is higher

Composition Scheme GST Rates as per Notification No. 01/2018 – Central tax dated 1st January, 2018

Type of BusinessCGSTSGSTTotal
Manufacturer0.5%0.5%1%
Supplier of Food and Drinks (Restaurant Service)2.5%2.5%5%
Traders (Other Suppliers)0.5%0.5%1%
Service ProvidersSupplier of services except the restaurant service providers cannot opt for the composition scheme.

The central government on the recommendations of the GST Council also clarified that now the traders now would be taxed at 0.5% of only turnover of taxable supplies of goods rather than aggregate turnover

Composition Scheme GST Rates as per Notification No. 08/2017 – Central tax dated 27th June, 2017

Type of BusinessCGSTSGSTTotal
Manufacturer1%1%2%
Supplier of Food and Drinks (Restaurant Service)2.5%2.5%5%
Traders (Other Suppliers)0.5%0.5%1%
Service ProvidersSupplier of services except the restaurant service providers cannot opt for the composition scheme.

Conditions for Composition Levy

Following are the conditions that need to be satisfied in order to opt for composition levy:

  • The person opting for the composition scheme should neither be a casual taxable person nor a non – resident taxable person
  • The goods held by a taxpayer in stock on the appointed day must not be purchased from a place outside his state. This means that the goods should not have been:
    • purchased in the course of Inter-state trade or commerce
    • imported from a place outside India
    • received from a branch situated outside the state
    • received from his agent or principal outside the state
  • Composition dealer must issue bill of supply in the prescribed manner
  • Composition dealer cannot claim input tax credit on purchases
  • A composition dealer must mention the words ‘composition taxable person not eligible to collect tax on supplies at the top of every bill of supply issued by him.
  • He must also mention the words ‘composition taxable person’ on every notice board or sign board displayed at the prominent place at his every place of business.

Bill of Supply

A taxable person opting for the composition scheme has to issue a bill of supply as he is not eligible to issue taxable invoice under GST. Furthermore, A composition dealer must mention the words ‘composition taxable person not eligible to collect tax on supplies at the top of every bill of supply issued by him.

Validity of the Composition Scheme

As long as a composition dealer meets the eligible criteria nad conditions related to the composition scheme he can continue to pay GST under the said scheme. This means that he is not required to file a fresh application for registration under composition scheme every year.

However, if such a person fails to satisfy any of the conditions for composition levy, hew shall be liable to pay tax under section 9(1) of the CGST ACT. Such a tax would be levied from the day he fails to meet the conditions for the composition scheme. Furthermore, he shall be issuing tax invoice for every taxable supply made from the day he ceases to comply with the conditions of the composition scheme. Also, such a person needs to file an intimation for withdrawal from the composition scheme.

Withdrawal from the Composition Scheme

A registered taxable person who intends to withdraw from the composition scheme has to file an intimation for withdrawal from such a scheme. This intimation is filed in form GST CMP – 04 before the date of such withdrawal. However, if any registered person fails to comply with any of the provisions of the composition scheme, such a person has to file an intimation for withdrawal from the composition scheme in GST CMP-04 within 7 days from occurrence of such an event.

Once the composition dealer opts out of the composition scheme, he has to pay tax as a normal taxpayer and issue tax invoice for every taxable supply made thereafter. Following this he also has to furnish details of inputs, semi – finished or finished goods held in stock by him on the date when he withdraws from the scheme. Furthermore, such a statement has to be submitted on the GST portal within 30 days from the date of withdrawal.

Also, such a person is entitled to take ITC on inputs and semi – finished goods and finished goods held in stock and on capital goods. Such credit of input tax can be claimed on the day immediately preceding the date from which he becomes liable to pay tax as a normal taxpayer as per section 9 of CGST act, 2017.

Action for Opting the Scheme Wrongly

If a registered person wrongly opts for the composition scheme or has not complied with any of its provisions, then the proper officer shall issue a show cause notice to such a person in form GST CMP – 05. The composition dealer needs to reply to such a notice within 15 days of its receipt.

Thereafter, the proper officer needs to either accept the composition dealers reply or deny the option to pay tax under the composition scheme. The officer needs to send such acceptance or denial in form GST CMP – 07 within 30 days of receipt of reply from the composition dealer.

Thus, the registered person who has been denied the option to pay tax under the composition scheme has to furnish details of inputs and semi-finished or finished goods held in stock by him in form GST ITC – 01. Such a form must be filed on the date on which the registered person ahs been denied the option to pay tax under the composition scheme. Also, this form needs to be submitted on the GST portal within 30 days from the date of denial. Also, it is important to note that the registered person contravening the rules shall be liable to pay and penalty.

GST Return for Composition Scheme Taxpayers

The taxpayers who are registered as composition dealers need to file form GST CMP – 08 every quarter. Such a form declares the summary of self assessed tax payable for a given quarter by taxpayers registered as composition dealers under the GST composition scheme. This statement is used for making payment of tax every quarter by a composition dealer.

In addition to furnishing of GST CMP-08, a composition dealer is also required to file annual return in form GSTR-4. Every person who has aggregate annual turnover as prescribed under the GST composition scheme, can choose to become a composition dealer.

Due Date for Filing GST CMP – 8

Form GST CMP-08 is a statement that needs to be furnished by a composition dealer at the end of each quarter. Thus, the due date to file GST CMP-08 is 18th of the month following the quarter for which tax payment needs to be made by the composition dealer.

GST Composition Scheme
Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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