5 W’s related to Composition scheme under GST

There are popular 5 Ws (What, who, when, why, where) which can generally  answer all type of questions in respect of any topic.

Composition Scheme Under GST is yet not clear to more of the persons. It seems to be very attractive when things are not crystal clear. But right decision can only be taken after considering all the aspects.

In this article we will discuss all the relevant provisions in respect of composition scheme in GST with the help of 5 Ws.

WHAT AND WHY (What is composition scheme and why it is required)

Composition scheme is nothing but a way to pay tax at nominal rate and minimized the compliance cost on a small taxpayer.

Big organizations in India have the required resources and expertise that can facilitate the compliance procedures. On the other hand, small and medium enterprises (SMEs) and start-ups will have difficulty in complying with these provisions.

Thus, to lower the burden of compliance for small businesses, a composition scheme is brought under GST where the an assessee can opt to pay tax at a minimum rate as applicable.

Also composition dealer is not required to maintain detailed accounts and records as required in case of normal taxpayers.

WHO AND WHEN (Who can avail this scheme and when they can avail)

Registration under composition scheme can be availed in any of the 4 following scenarios:-

1. Person registered under existing law and migrate to GST where he has received provisional registration certificate

In this case, the person applying for composition scheme will file FORM GST CMP-01 duly signed or verified through EVC, on the common portal, prior to or within 30 days of appointed day.

Where 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 supplies made after the appointed day.

2. Person taking fresh registration under GST

In this case, the person applying for composition scheme will file normal registration application in FORM GST REG-01 and will opt for composition scheme.

3. Person already registered under GST as normal assessee and apply for composition scheme prior to commencement of the Financial Year

In this case, the person applying for composition scheme will file FORM GST CMP-02 duly signed or verified through EVC, on the common portal, prior to commencement of the financial year for which option is exercised.

Also furnish FORM GST ITC -03 within 60 days from the commencement of the relevant financial year.

4. Any person registered under existing law and migrated to GST where he has received provisional registration certificate OR any person registered under GST where he has been granted final certificate of registration

In this case, the person applying for composition scheme will file FORM GST CMP-02 duly signed or verified through EVC on the common portal on or before 31st march 2018.

Also furnish FORM GST ITC -03 within 90 days from the day on which such person commences to pay tax as composition dealer.

Note that:- Such person will not be allowed to file FORM GST TRAN- 1 after filing of FORM GST ITC -03

Person registered under existing law and migrate to GST where he has received provisional registration certificate and opt for Composition scheme shall also furnish details of stock, including the inward supply of goods received from un registered persons, held by him on the day preceding the date from which he opts to pay tax under composition scheme in FORM GST CMP- 03 duly signed or verified through EVC, on the common portal within 90 days from the date on which the option for composition levy is exercised.

Effective date for composition scheme:-

1. Person registered under existing law and migrate to GST where he has received provisional registration certificate-The effective date will be appointed day

2. Person taking fresh registration under GST– The application filed for opting scheme shall be considered only after the grant of registration to the applicant

The option to pay tax under composition shall be effective from the:-

• Date on which the person becomes liable to registration where the application for registration has been submitted within a period of 30 days from such date.
• Date of grant of registration where the application for registration has been submitted within a period of 30 days from such date.

3. Person already registered under GST as normal assessee and apply for composition scheme prior to commencement of the Financial Year –The effective date will be beginning of the financial year

4. Any person registered under existing law and migrated to GST where he has received provisional registration certificate OR any person registered under GST where he has been granted final certificate of registration- The effective will be the 1st day of the month succeeding the month in which he files FORM GST CMP-02

Threshold limit for composition scheme

A registered person whose aggregate turnover in the preceding financial year did not exceed 1 Core may opt for composition scheme.

However for following States

(i) Arunachal Pradesh,

(ii) Assam,

(iii) Manipur,

(iv) Meghalaya,

(v) Mizoram,

(vi) Nagaland,

(vii) Sikkim,

(viii) Tripura,

(ix) Himachal Pradesh, the limit is 75 lakhs instead of 1 crore.

Rate of tax

S.No.	Category of registered person	Rate of tax	Total rate of tax
1	Manufactures, other than manufacturers of such goods as may be notified by the government	1% CGST and 1% SGST /UTGST	2%
2.	Restaurant service providers	2.5% CGST and 2.5% SGST /UTGST	5%
3.	Traders	0.5% CGST and 0.5% SGST /UTGST	1%

WHERE (Where the composition scheme can be availed- conditions and restrictions)

Conditions and restrictions for composition levy:-

1. He is not engaged in supply of services other than restaurant services

2. He is not engaged in supply of goods which are not leviable to tax under this act.

3. He is not engaged in making any supply of goods through an electric commerce operator who is required to collect TCS under section 52.

4. He is not engaged in making any interstate outward supplies of goods

5. He is not a manufacturer of such goods as may be notified by the government.

6. He is neither a casual taxable person nor a non resident taxable person

7. Where Person registered under existing law and migrate to GST where he has received provisional registration certificate, he should not have the goods in stock on the appointed day that have been purchase in the course of inter- trade or commerce or imported from a place outside India or received from his branch situated in outside state or from his agent or principal outside the state.

8. The stock held in stock by him have not been purchased from an unregistered supplier and where purchased, he pays tax under section 9(4).

9. He shall pay tax under section 9(3) or 9(4) on inward supply of goods or services or both.

10. 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 every additional place or places of business.

Where a person has more than one registration on same PAN, he shall not be eligible to opt for the scheme unless all such registration having same PAN opt for it.

He shall mention the word ” composition taxable person, not eligible to collect tax on supplies” at the top of bill of supply issued by him.

Thus he shall not collect any tax from the recipient on supplies made by him nor shall he be entitled to any Input tax credit. Also a composition dealer will issue Bill of supply while making any outward supply instead of tax invoice.

Validity of composition scheme

> The scheme opted shall remain valid as long as all the conditions mentioned above are satisfied

> In case, any of the conditions is ceased to be satisfied, the person will be liable to pay tax as normal assessee and shall also file an intimation for withdrawal from the composition scheme in FORM GST CMP- 04 within 7 days of occurrence of such event.

> Any composition dealer who intentionally want to withdraw from the scheme shall file an application in FORM GST CMP- 04.

> Where any proper officer has reason to believe that a registered person was not eligible for composition scheme or has contravened any provision, he may issue notice in FORM GST CMP-05 to show cause within 15 days of receipt of such notice.

The registered person will reply to such show cause notice in FORM GST CMP-06.

On receipt of such reply from the registered person, proper officer shall issue an order in FORM GST CMP-07 within a period of 30 days on receipt of such reply either accepting or denying the reply.

> On withdraw from such scheme either intentionally or on passing of order by proper officer, a statement in FORM 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 from the date of order passed by proper officer as the case may be.

> If a registered person intentionally withdraw or on passing of order by proper officer to deny of option to pay tax under composition scheme. Such withdraw or order shall apply to all the business places of registered person having same PAN.