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:

Includes Excludes
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
Manufacturers 1% 1% 2%
Restaurants Services other than alcoholic drinks 2.5% 2.5% 5%
Other suppliers 0.5% 0.5% 1%

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

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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

GST- Rule 4 Validity of Composition Levy

VINOD CHAURASIA & ASSOCIATES-  cavinodchaurasia@gmail.com, Mobile: 9953587496

The author is a practising CA and registered Insolvency Professional.

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8 responses to “All about Composition Scheme in GST”

  1. Balakrishnan says:

    Sir im having a small shop of samosa jalebi and gulabjamun previosly i was paying 1%on turn over now wat should i do

  2. Abhishek singh says:

    in this article https://taxguru.in/goods-and-service-tax/composition-scheme-gst-updated-18-2017.html it is mentioned that 1% rate of composition fees is only for cgst part. While in this article it is mentioned that it is total composition fees which we have to pay. Please clarify

    • vinodchaurasia says:

      The composition rates given above are Central Government tax rates as per section 10 of CGST ACt.

      Same composition rates have also been provided in in section 10 of Maharastra, Delhi , Pudhuerry , Punjab …… many other State CGT Act.

      so both tax rates are to be summed up for calculation final tax rates

      Vinod

  3. SAGAR ARORA says:

    Dear Sir,
    The rates mentioned in the composition rules are 0.50% , 1% & 2.5% respectively……..
    Why we including same portion in both CGST & SGST……
    I think if the rate is 1% as mentioned in case of manufacturers then it should be divided equally as 0.50% for SGST & 0.50% for CGST instead of 1% for both……

    • vinodchaurasia says:

      The composition rates given above are Central Government tax rates as per section 10 of CGST ACt.

      Same composition rates have also been provided in in section 10 of Maharastra, Delhi , Pudhuerry , Punjab …… many other State CGT Act.

      so both tax rates are to be summed up for calculation final tax rates

      Vinod

  4. caneha says:

    thank you sir. very well explained in detailed. Request you provide us ppt presentation. My email id is mainbhineha@gmail.com.

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