The Composition levy scheme is a very simple, hassle free compliance scheme and an alternative method of levy of tax designed for small taxpayers. It is a voluntary and optional scheme. The objective of composition scheme is to bring easy and reduced compliances; simple quarterly return, quarterly payment of taxes and no requirement of maintaining detailed records and accounts.

Limit & Applicability:

The composition scheme under GST is currently applicable to businesses where the aggregate turnover in the previous financial year do not exceed Rs. 1.5 crores (Rs.75 lakhs is applicable in case of North Eastern States & Uttarakhand)

Earlier, the composition scheme was not available to supplier of servicesexcept supply of food for human consumption. However, w.e.f 01.02.2019 a person who opts for composition scheme may supply services of value not exceeding 10% of turnover in a State in the preceding financial year or 5 lakh rupees, whichever is higher.

Also, a simplified scheme has also been introduced that w.e.f 01.04.2019, small service providers (those who are supplier of goods as well as services but exceeding 10% of turnover within State/UT) whose aggregate turnover in preceding financial year is up to ₹ 50 lakhs can also opt for composition levy.

Aggregate turnover is computed on all India basis for a person having same Permanent Account Number (PAN). It is sum of value of all outward supplies falling in the following four categories:

  • Taxable supplies
  • Exempt supplies
  • Exports of goods or services or both
  • Inter-state supplies,

but excludes

  • The value of inward supplies on which tax is payable by a person on reverse charge basis &
  • Taxes including cess paid under GST law

CBEC has clarified that value of any exempt services provided by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount, shall not be taken into account for computing the aggregate turnover.

Rate of Tax under the scheme

Type of Business CGST Rate of Tax SGST Rate of Tax
Manufacturers and Traders (Goods) 0.5% 0.5%
Restaurant Services (not serving alcohol) 2.5% 2.5%
Goods & Services provided turnover of services does not exceeds 10% of total turnover or Rs. 5 lakh, whichever is higher 0.5% 0.5%
Goods or Services or Both (mixed supplies) provided turnover is upto Rs. 50 lakh 3% 3%

Eligibility for availing Composition Scheme:

  • Not making any supply of goods which are not leviable to tax under this Act;
  • Not making any inter-State outward supplies of goods;
  • Not making any supply of goods through an E-commerce operator who is required to collect tax at source under section 52;
  • Not a manufacturer of goods as may be notified by the Government such as:
S.No. Tariff Item, subheading, heading or chapter Description

1

2105 00 00 Ice Cream and other edible ice, whether or not containing cocoa

2

2106 90 20 Pan Masala

(*2A)

2202 10 10 Aerated Water (Inserted vide Notification No. 43/2019-CT dt 30.09.2019)

3

24 All goods i.e Tobacco and manufactured tobacco subsitutes
  • Neither a casual taxable person nor a non-resident taxable person

Apart from the above, any taxpayer who is exercising the option to pay tax shall also comply with the following condition:

  • Goods held in stock on the appointed day have not 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 agent or principal outside the State, where the option is exercised by a dealer migrating to GST scheme starting from appointed day;
  • The goods held in stock by not been purchased from an unregistered supplier and where purchased, tax should have been paid under RCM.

Also where more than one registered persons are having the same PAN, the registered person shall not be eligible to opt for the scheme unless all such registered persons opt to pay tax under that such scheme.

List of various Forms available for taxpayers:

Form Purpose Due Date for filing Return
GST CMP-01 Registration under Composition Scheme Prior to appointed date or within 30 days of said date beginning of financial year
GST CMP-02 Intimation of willingness to opt in of the scheme Prior to commencement of Financial year*
GST CMP-03 Details of stock and inward supplies from unregistered person on the date of opting Within 90 days of exercise option
GST CMP-04 Intimation of withdrawal from scheme Within 7 days of occurrence of event
GST CMP-05 Show Cause Notice on any contravention of any rules or act In contravention of rules or Act
GST CMP-06 Reply to Show Cause Notice Within 15 days of received of Show Cause Notice
GST CMP-07 Order of Acceptance/Rejection of Reply to SCN Within 30 days of received of reply to SCN
GST ITC-01 Declaration for claim of input tax credit in stocks, semi-finished and finished goods Within 30 days of composition scheme option withdrawn or from the date of order
GST ITC-03 Intimation of ITC (Input Tax Credit) reversal/payment of taxes on inputs held in stock, semi-finished and finished goods. Within 60 days of commencement of the financial year.*
GST CMP-08 Statement for payment of Self- Assessed Tax (Quarterly Return) (w.e.f April,2019, previously filed as GSTR-4) 18th of the month after the end of the quarter**
GSTR-4 Annual Return within 30th April of the succeeding year**
GSTR-9A Annual Return (For Composition Taxpayer) within 30th November of the succeeding year
* Due to COVID-19 outbreak, the taxpayer shall furnish the statement in Form GST ITC-03 within 31st July, 2020.

** Due to COVID -19 outbreak, the taxpayer can file Form GST CMP-08 for the quarter January-March 2020 till 7th July, 2020 and Form GSTR-4 for FY 2019-20 till 15th July, 2020.

*** It is optional to file GSTR-9A for the year 2017-18 and 2018-19.

Transitional Provisions:

Switch from Normal Tax Payer to Composition Scheme Tax Payer

In such a case, the taxpayer shall be liable to pay an amount equal to the credit of input tax in respect of inputs held in stock on the day immediately preceding the date of such switch over. The balance of input tax credit after payment of such amount, if any lying in the credit ledger shall lapse.

Switch from Composition Scheme Taxpayer to Normal Tax Payer

In such a case, the taxpayer will be allowed credit of duties held in stocks as inputs or credit of value added Tax in respect of inputs and inputs contained in semi-finished or finished goods on the appointed date subject to the following conditions:

  • Such inputs or goods will be used in making taxable supplies
  • Not being a composite scheme holder
  • Being eligible to claim credit of taxes
  • The inputs were not such that credit was not admissible under the earlier law due to being mentioned in any schedule or otherwise
  • Being in possession of invoice or document evidencing payment of duties under earlier laws w.r.t. inputs held in stock and semi-finished or finished goods
  • Such invoices and/ or documents were issued maximum twelve months before the appointed date.

Some Other important points:

  • No Input Tax Credit (ITC) will be made available to composition levy of tax.
  • Composition dealers cannot charge tax from their customers. It should be paid out of their own pocket.
  • The taxpayer has to pay tax at normal rates for transactions under the Reverse Charge Mechanism, wherever applicable. Also, no ITC is available for tax paid under Reverse Charge.
  • Composition dealers must issue Bill of Supply instead of Tax Invoice and should mention “composition taxable person not eligible to collect tax on supplies” on their top of Bill of supply.
  • A Registered person under composition scheme may not file a fresh intimation every year and he may continue to pay tax subject to the provisions of the Act and these rules.
  • Composition Dealers have to 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.

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