Composition Scheme under GST
All the Tax Practitioners (Chartered Accountants or otherwise) can understand the importance of composition scheme better (especially those who deal with the smaller business clients). The bigger organizations have the resources and expertise to deal with the requirement of Regular provisions of GST however smaller business organization such as Small and medium sized organizations may struggle to comply with the regular provisions of GST. So Govt. has introduced a composition scheme in GST which is very much on the similar lines of VAT.
Let us understand the GST Composition scheme with a conversation between me and my client – Mr. A, who is a small trader in Vadodara which is as follows:
| Mr. A: | Hello Mr. Mayur, I am here to understand the Composition (Lumpsum) scheme option available in GST. Can you please let me know whether first of all, I am eligible for the scheme or not? |
| Me: | Hello Mr. A, Welcome. 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. Since you have been our client for last 3 years and I know your previous year’s turnover so I can safely say that you are eligible for the scheme. |
| Mr. A: | What if I avail the composition scheme this year and during the year I cross the turnover of Rs. 50 Lakhs, for example in December. Shall I be allowed to pay tax under composition scheme for remainder year till 31st March? |
| Me: | No Mr. A. The option availed shall lapse from the day on which his aggregate turnover during the financial year exceeds Rs.50 Lakhs. |
| Mr. A: | What if I opt for Composition scheme and violate the conditions? |
| Me: | I would advise you better not. However, 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 74 shall be applicable for determination of tax and penalty. (The penal sections are too elaborative to explain here.) |
| Mr. A: | So How to compute ‘aggregate turnover’ of Rs. 50 Lakhs to determine eligibility for composition scheme? |
| Me: | Aggregate turnover’ means:
Value of all outward supplies (taxable Sales +exempt Sales + Exports sales + Inter-state Supplies) of a person having the same PAN Minus: Taxes levied under central tax (CGST), State tax (SGST), Union territory tax (UTGST), integrated tax(IGST) and compensation cess. Note: The value of inward supplies on which tax is payable under reverse charge is not taken into account for calculation of ‘aggregate turnover’. |
| Mr. A: | Ohk!!! Is the composition scheme similar to what we do in VAT currently? |
| Me: | Yes, Mr. A, The Composition scheme under GST is quite similar to VAT. The difference lies in the rate of tax. Under current system of VAT in almost all states the rate of tax under composition levy is 0.5% (approx.) on majority of the items.
Under GST, 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. |
| Mr. A: | Mr. Mayur, as you know that we are having multiple registrations for our multiple vertical of business. So is it possible to opt for Composition scheme for one registration and Regular scheme for other? |
| Me: | Good Question Mr. A. but 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. |
| Mr. A: | I have one of my friend who is in the business of manufacturing and other is providing Business auxiliary services to his client. Can they both apply for composition scheme? |
| Me: | Yes, your manufacturer friend can opt for composition scheme. 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. So your friend, who is a service provider as business auxiliary services, cannot opt for the scheme. |
| Mr. A: | That’s strange!! One can apply and other cannot!!! Any ways maybe that’s the way the law is.
So Mr. C.A. can you specify who are actually not eligible to opt for composition scheme? |
| Me: | Mr. A, I hope you are not planning to compete with me… Just kidding!!!
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. |
| Mr. A: | So Mr. Mayur, will the law related to non-availment of Input tax Credit, non collection of tax from customer remains same as the case in VAT? |
| Me: | Bang on Mr. A. Yes the law remains the same which is as follows (mentioned at the cost of repetition):
a. Registered person under composition scheme is not eligible to claim input tax credit b. 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. c. The registered person under composition scheme is not permitted to collect tax. It means that a composition scheme supplier cannot issue a tax invoice. |
| Mr. A: | If one of my friends intends to take new GST Registration, can you please tell me how can he opt for Composition scheme? |
| Me: | You are really a very friendly person Mr. A I must say.
Your friend needs to file GST REG 01 to obtain registration under GST and in the form itself there is an option in part B – Point number 6 to select for composition scheme. |
| Mr. A: | Mr. Mayur One Last question here, what is the return filling formality under composition schemes and what is the due date for payment of taxes under the same? |
| Me: | Let me first tell you about the Return filling Requirement:
Unlike the regular scheme where assessee needs to file returns monthly and that too three different returns, Here in Composition scheme only one return – GSTR 4, needs to be filed. Such form is to be filed on 18th of the month succeeding the quarter. So the return is to be filed quarterly. And at the yearend you will have to file Form GSTR 9A as an annual Return. The due date of payment is 18th of the month succeeding the quarter. So the payment is also to be made quarterly. |
| Mr. A: | Thank you Mr. Mayur Thakkar. The above information was quite comprehensive. |
| Me: | Mr. A, You forgot to ask one question to make the conversation complete conversation. The question about our Professional Fees. J |
| Mr. A: | Don’t worry Mr. Mayur that we will understand later. J |
| Me: | L |
Disclaimer: The above article is based on the understanding of the author of the revised rules published on 31st March 2017. Any Suggestion in this regard is highly appreciated. You can provide your suggestion on [email protected]/ 85300 89839.
Author Bio
I have 10 customers , in that only 3 pay on time. other partly paid and yet to pay. due to our bad AR condition we did not file GST from April to July 2018. My paying customers asking for GST filing details. Can we file by paying lump sum upto date for my paying customer and file GST for them and later for other based on my financial conditions
my sales tax advocate applied for the scheme but didn’t validate the dsc so after 15 days the application was canceled do we cant do new application because it shows we already applied or submit the application.
and we cant find the application in draft.
and in profile my company shows normal company
sir i am semi wholesaler of ready made tobacco products so can i avail composition scheme?? Is there any rule that traders of some products(like ready made tobacco product) can not avail this scheme??
what goods are notifed for manufactures /or manufacturing process in a particular state barring small manufacturers for adopting composition scheme under gst.Example ground A person shaping or manufacturing wood in a small saw mill &sells within state of punjab only,who purchases input of wood from agriculturists or local grown trees&sells its final products?Can he opt for composite scheme if his total turnover is below 50 lacs &that too within the state only?
Vaibhav, Thank you.
Prasanna – It is written that “persons making any inter-State taxable supply, irrespective of the threshold specified under paragraph 1, should get registered” the word written is Supply which includes service as well as goods.
Virender – Yes you will be eligible for Composition Scheme in that case. As per First Proviso to Section 9(1), GST Composition scheme is not available to the person who makes outward interstate supply of goods.
e.g. You are from Gujarat and purchasing goods from Maharashtra. Selling the same goods in Gujarat only then you are eligible for composition scheme however if your outward supply (sales) is inter state then you are not eligible for Composition scheme.
Dear sir I have some closing stock of interstates purchase. If I sold all the stock before 1st July then I will be eligible to get composition scheme?
Do unregistered person can provide interstate services, if his aggregate turn over not crossed by RS 20 lacs. As it it is stated that goods cannot be supplied. Hope services can be provided.
Gr8 Sir
Waiting to see more of your articles in this format which would help to understand GST in an amiable manner.