Composition Levy – Section 10 of CGST Act
1. The Composition Scheme for small businesses has been provided to help them with maintaining minimal compliance.
2. This Composition Scheme will make compliance with tax laws hassle free for eligible businesses opting for the scheme.
3. Composition Scheme is allowed granted (subject to certain conditions), if aggregate Turnover in previous year does not exceed Rs. 75 lacs. which may be extended upto Rs. 1 Cr. On recommendation of GST Council.
4. As per sec 2(6), “Aggregate Turnover” means aggregate value of all taxable supplies (whether on his own account or behalf of principal), computed on all India basis having same PAN. The aggregate turnover includes/excludes the following:
|– Exempt supplies
– Exports of goods/services
– Inter-state supplies
– Supply of goods after completion of job work shall be treated as supply by principal and not of job work.
|– Inwards supplies on which tax is payable under Reverse Charge Mechanism (RCM)
– Tax & Cess under GST Law
GST Tax Rates Under Composition Scheme (Rule 10)
|Taxable Person||CGST||SGST/UT GST||Total GST|
|Restaurants Services other than alcoholic drinks||2.5%||2.5%||5%|
As per sec. 2(72) of CGST Act – “Manufacture” means processing of raw material or inputs in any manner that results in emergence of a new product having a distinct name, character and use and the term “manufacturer” shall be construed accordingly.
1. The scheme is not applicable to taxable person who:
a)Is engaged in the supply of services other than supplies in relation to services of a restaurant.
b)Makes any supply of goods which are not leviable to tax.
c)Makes any inter-state outward supplies of goods.
d)Makes any supply of goods through an electronic commerce.
e)Is e commerce operator & required to collect tax at source.
f)Manufacturer of such goods as may be notified on the recommendation of the council
2.Composition Scheme is once opted, said scheme will be applicable to all registered person holding same PAN.
3.The option availed by registered person in respect of Composition Scheme shall lapse with effect from the date his aggregate turnover during the FY exceeds Rs. 75 lakhs.
4.A taxable person who opts for the said scheme shall not collect any tax from the recipient supplies made by him nor shall he be entitled to any ITC.
5.Tax and penalty applicable if scheme is wrongly availed
Composition Scheme Rules, 2017
Rule 1: Intimation and Effective date for Composition Levy
1. Any person being migrated from existing law and who opts for Composition Levy shall file an intimation in Form GST CMP-01, duly signed, before or within 30 days of appointed date.
If intimation is filed, after the appointed day, the registered person shall:
a) not collect taxes, but
b) issue bill of supply for supplies
Also file Form GST CMP- 03 within 60 days of exercise of option :
a) Details of stock
b) Inward supply of goods received from unregistered persons held by him on the date preceding the day of exercise of option
2. For Fresh registration, file Form GST REG- 01.
3. Any person already registered GST, opts to pay taxes under Composition Scheme, shall file:
a) Intimation in Form GST CMP- 02for exercise option prior to commencement of the FY
b) Statement in Form GST ITC- 3 for details of ITC relating to inputs lying in stock, inputs contained in semi-finished or finished goods within 60 days of commencement of the relevant financial year.
4. Any intimation shall be deemed to be an intimation in respect all places on business registered with same PAN.
Rule 2: Effective date for composition levy
1. For Migrated person/ already registered taxable person, the option to pay tax under Composition Scheme shall be effective:
a) For persons who are migrated from existing law & Where intimation in Form GST CMP-01 is filed within 30 days : Appointed Day.
b) Already Registered under GST and now opts for Composition Scheme & Intimation in Form GST CMP- 02for exercise option prior to commencement of the FY : Beginning of the FY.
2. For Fresh Registration, the option to pay tax under Composition Scheme shall be effective:
a) where the application for registration has been submitted within thirty days from the day he becomes liable for registration, such date.
b) In any other case, the effective date of registration shall be the date of grant of registration.
Rule 3: Conditions and Restrictions for Composition Levy
1. The person opting for the scheme must neither be a casual taxable person nor a non-resident taxable person.
2. The goods held by him in stock on the appointed date must not be purchased from a place outside his state, like:
a) Inter- state purchase
b) Imported Goods
c) Branch situated outside the State
d) Agents or Principal situated outside the State
3. Where the taxpayers deals with unregistered person, tax must be paid under RCM or no stock must be held
4. Must mention of the words “Composition Taxable Person, not eligible to collect tax on supplies” at the top of the bill of supply issued by him.
5. Must mention of the words “Composition Taxable Person” on every notice and signboard displayed at a prominent place at all places of business.
Composition Scheme Rules- List of Forms
|Form No.||Purpose||Due Date|
|Form GST COMP-01||To opt for scheme by provisional registration holder /Migrated Registrants||Prior to appointed date or within 30 days of the said date|
|Form GST COMP-02||Intimation of willingness to opt for scheme||Prior to commencement of financial year|
|Form GST COMP-03||Details of stock and inward supplies from unregistered Person||Within 60 days of exercise of option|
|Form GST COMP-04||Intimation of withdrawal from composition scheme||Within 7 days of occurrence of event|
|Form GST COMP-05||Show Cause Notice on contravention of rules or Act by Proper Officer||On contravention|
|Form GST COMP-06||Reply to Show Cause Notice||Within 15 days|
|Form GST COMP-07||Issue of Order||Within 30 days|
|Form GST REG-07||Registration under composition scheme||Prior to appointment date|
|Form GST ITC-01||Details of inputs in Stock, semi-finished and finished goods||30 days of option withdrawn|
|Form GST ITC-03||Intimation of ITC available||Within 60 days of commencement of Financial Year|
Rule 4: Validity of Composition Levy
VINOD CHAURASIA & ASSOCIATES- email@example.com, Mobile: 9953587496
The author is a practising CA and registered Insolvency Professional.