Article explains Essential Requirements to avail the Composition Scheme, Basic Points to understand the Composition Scheme, GST Composition Scheme and Reverse Charge Mechanism, Tax rate applicable to a dealer opting for GST Composition Scheme and Calculation of Tax under GST Composition Scheme.
Sec 10 of CGST Act 2017 read with Rule 3 to 7 Related to Composition Levy explains the composition levy under Goods and Services Tax, according to which, a registered person, whose aggregate turnover in the preceding financial year did not exceed Rs. one Crore may opt to pay, in lieu of the tax payable by him, an amount calculated at such rate as may be prescribed, but not exceeding,
(a) one per cent. of the turnover in State or turnover in Union territory in case of a manufacturer,
(b) two and a half per cent. of the turnover in State or turnover in Union territory in case of persons engaged in making supplies referred to in clause (b) of paragraph 6 of Schedule II, and
(c) half per cent. of the turnover in State or turnover in Union territory in case of other suppliers,
subject to such conditions and restrictions as may be prescribed:
It means that the registered person meeting the criteria of specified turnover as mentioned in the section has an option to pay tax as per his turnover on a certain % rate instead of the normal GST slabs. That is the reason it is called a “composition levy” under Goods and Services Tax.
1. A registered person
2. With a specified turnover
3. In lieu of tax payable i.e. tax has to be paid
4. Tax to be paid as per the limit of turnover
5. Other conditions and restrictions as written in the corresponding rules.
> Turnover of all businesses with same PAN has to be added up to calculate turnover for the purpose of composition scheme
> Only manufacturers of goods , dealers, and restaurants (not serving alcohol) can opt for composition scheme
> as per notification dated 01/01/2018 , turnover in case of traders has been defined as “Turnover of Taxable Supplies of Goods”
> Service Providers are not eligible for Composition Scheme, except those who provide 10 percent services from their annual turnover
> Rates under composition scheme are applicable only to sales of a composition dealer and not for paying tax under Reverse Charge, as explained below.
> A dealer opting for Composition Scheme cannot avail Input tax Credit against purchases made under Goods and Services Tax
> The dealer under Composition Scheme has to issue Bill of Supply and cannot issue tax invoice
> A Composition dealer cannot collect composition tax from buyers.
> An annual declaration has to be given by the dealers who wish to opt for composition scheme for a particular Financial Year and that too at the beginning of the year.
A dealer who has opted for composition scheme under Goods and Services Tax has to pay tax under Reverse Charge Mechanism wherever applicable. It is important to understand that the rate under composition scheme should not be used for reverse charge purposes. The rate for paying tax under reverse charge under the composition scheme is the rate at which GST has to be paid.
|Manufacturers and Traders||0.5%||0.5%||1%|
|Restaurants not serving Alcohol||2.5%||2.5%||5%|
|Tax on supplies (net of advance and goods returned)||a|
|Tax on Business to Business transactions where reverse charge is applicable||c|
|Tax on Business to Business transactions from unregistered suppliers||d|
|Tax on import of services||e|
|Total GST payable by a dealer under Goods and Services Tax||(a+b+c+d+e)|