CA Sourabh Singhania
INDIA is on the edge of implementing the biggest Indirect Tax reform since Independence i.e. the present structure of indirect taxation for goods and services would be replaced by a comprehensive Goods and Services Tax (‘GST’). The swift approach of our Government has made it possible to introduce GST, which is likely to be rolled out from July 01, 2017.
In view of the paradigm shift in Indirect Tax levy, it is imperative for trade, especially small business, to prepare themselves for the change and experiment the likely options available under the new law to best suit their business models.
Every tax administration aims towards timely recovery of taxes, simplified filing of returns, easy generation and maintenance of records, invoices, etc. Such elements are often a challenge for small businesses. To overcome this shortcoming, the GST contains a Composition Scheme as an option for a registered taxable person having specified turnover limit to pay tax at a lower rate with minimal compliance burden. Let us discuss the features of GST Composition scheme in upcoming paras.
Persons eligible to opt for Composition Scheme
*Computed on all India basis for same PAN excluding inward supplies on which tax is payable under RCM
Persons NOT eligible to opt for Composition Scheme
Composition Tax Rate
|Category of registered persons||CGST Rate||SGST Rate||Total Tax|
|Manufacturers, other than manufacturers of such goods as may be notified by the Government||1.00 %||1.00 %||2.00 %|
|Suppliers making composite supply of food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption) by way of or as a part of any service viz. Restaurants, Eating Joints, Mess, Canteens, Outdoor Caterer, etc.||2.50 %||2.50 %||5.00 %|
|Any other supplier (other than manufacturers of notified goods)||0.50 %||0.50 %||1.00 %|
Other Salient features of Composition Scheme
Merits of Composition Scheme
Demerits of Composition Scheme
If taxpayer has availed input tax credit, he shall be liable to pay an amount equal to the credit of input tax (CGST, SGST, IGST) in respect of inputs, inputs contained in semi-finished or finished goods, held in stock and on capital goods, reduced by certain percentage point, 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.
Tax payer shall be entitled to take credit of input tax (CGST, SGST, IGST) in respect of inputs, inputs contained in semi-finished or finished goods and on capital goods (reduced by certain percentage points) on the day immediately preceding the date of such switch over.
Tax payer will be allowed to take credit of eligible duties (Excise, CVD, SAD, additional excise duty under central law and VAT under state laws, etc.) in respect of inputs, inputs contained in semi-finished or finished goods on the appointed date subject to the following conditions:
√ Such inputs or goods are used or to be used for making taxable supplies under GST v’ Tax payer does not opt for composite scheme under GST
√ Input tax credit on such inputs is admissible to tax payer under GST
√ Tax payer is in possession of invoice or document evidencing payment of duties under earlier laws for which credit to be availed
√ Such invoices and/or documents were not issued earlier than 12 months before the appointed date
a) Input Tax Credit carried forward in the return – The said credit is not eligible to be carried forward in GST regime and would lapse.
b) Input Tax credit contained in stock – There is no specific provisions in GST law requiring the tax payer to pay/debit any tax credit (Excise, CVD, SAD, additional excise duty under central law and VAT under state laws, etc.) involved in inputs, inputs contained in semi-finished or finished goods as on the appointed date. However, a composition scheme holder is not allowed to take ITC and hence same may not be available.
c) Goods held in stock by taxpayer on the appointed date shall not include:
√ Goods purchased in the course of Inter- state trade or commerce
√ Imported Goods
√ Goods received from Branch situated outside the State
√ Goods received from Agents or Principal situated outside the State
d) Goods held in stock by tax payer, if purchased from Un-registered person, tax on such purchases is paid under reverse charge in GST regime.
Practical issues and difficulties