CA Ujjwal Jindal

Since its introduction, GST has been into controversies. Many people found it unreasonable and for others it was just a new tax regime which was introduced in a hurry. The government kept on moving with the newly introduced tax system keeping the public along, listening to their concerns and making necessary timely changes/amendments.

One such change is the new composition scheme which came not as an addition to the earlier existing section 10 of the CGST Act, 2017, but through a notification dated 7th March, 2019 [Notification No. 2/2019 – Central Tax (Rate)].

Let‟s take a quick yet detailed look at what is this new scheme all about!

The new composition scheme was introduced for persons who were not eligible for the earlier Composition Scheme (under section 10 of CGST Act, 2017). Basically, it focuses upon the supplier of services, nonetheless, it also applicable to the supplier of goods.

  • The new scheme is applicable to any registered person who made first* supplies of goods or services or both up to an aggregate turnover of 50 lakh rupees on or after the 1st day of April in any financial
  • The rate of tax has been kept at 6% under the notification [3% CGST and SGST respectively].

* [First supplies shall include, for the purposes of determining eligibility of a person to pay tax under this notification, the supplies from the 1st day of April of a financial year to the date from which he becomes liable for registration but for the purpose of determination of tax payable under this notification shall not include the supplies from the 1st day of April of a financial year to the date from which he becomes liable for registration under the Act. This is provided for in the notification by way of an Explanation.

Let‟s illustrate this explanation.

Period Particulars of Supplies Eligibility Limit for the scheme Tax   Computation under the scheme Comments
2019 – April to July Supplies by a service provider 20 L(shall  be considered) (Shall not be considered) Becomes liable for registration at the end of July, 2019
2019-August Supplies by the same service provider 30 L (shall be considered) 30 L (shall be considered) Opting for new composition scheme provided under N/N 2/2019 – CT (Rate)
IMPACT Eligible for the new composition scheme as aggregate turnover is 50 lakh Tax @ 6% shall be payable on 30 lakh only

Thus, the first supplies (of 20 L) shall be considered while determining the eligibility for the new composition scheme, however, the same shall not be considered while computing tax payable under the scheme.]

  • The above scheme is subject to, supplies made by a registered person –
    • whose aggregate turnover in the preceding financial year was 50 lakh rupees or below;
    • who is not eligible to pay tax under section 10(1) of CGST Act, 2017 i.e. under the old composition
    • who is not engaged in making any supply which is not leviable to tax under the GST Act;
    • who is not engaged in making any inter-state outward supply;
    • who is neither a casual taxable person nor a non-resident taxable person;
    • who is not engaged in making any supply through an electronic commerce operator who is required to collect tax at source under section 52 of CGST Act, 2017; and
    • who is not engaged in making supplies of the goods, the description of which is specified in annexure i.e. Ice cream and other edible ice, whether or not containing cocoa; Pan Masala; Tobacco and Manufactured Tobacco
  • Where more than one registered persons are having the same Permanent Account Number (PAN), tax on supplies by all such registered persons shall be paid at the rate specified above i.e. 6%. (This is similar to what is provided for under the old composition scheme i.e. under Section 10 of CGST Act, 2017)
  • The registered person shall not collect any tax from the recipient on supplies made by him nor shall he be entitled to any credit of input tax. (This is similar to what is provided under the old composition scheme i.e. under Section 10 of CGST Act, 2017)
  • The registered person shall issue, instead of tax invoice, a bill of supply as referred to in section 31(3)(c) of the this Act. This has been given effect by Order No. 3/2019 dated 8th March, 2019 as per CGST (Removal of Difficulty) Order,
  • The registered person shall mention the following words at the top of the bill of supply, namely – „taxable person paying tax in terms of Notification No. 2/2019- Central Tax (Rate) dated 07.03.2019, not eligible to collect tax on supplies‟.
  • The registered person opting to pay tax under this notification shall be liable to pay tax on inward supplies (purchases) on which he is liable to pay tax under section 9(3) or 9(4), as applicable, of this Act [i.e. on reverse charge (RCM)] at the applicable rates. (This is similar to what is provided for under the old composition scheme i.e. under Section 10 of CGST Act, 2017)
  • Where any registered person who has availed of input tax credit opts to pay tax under this notification (i.e. regular taxpayer now opting for the new composition scheme), he shall pay an amount, by way of debit in the electronic credit ledger or electronic cash ledger and after payment, the balance of input tax credit, if any, lying in his electronic credit ledger shall
  • In computing aggregate turnover in order to determine eligibility of a registered person to pay tax under this notification, value of supply of exempt services by way of

extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount, shall not be taken into account.

(This is similar to what was provided by CGST Amendment Act, 2018 [prior to its amendment, the same was provided by Order No. 1/2019 by CGST (Removal of Difficulty) Order, 2019].

Initially, the composition scheme was brought for manufactures and traders (except restaurant/catering service providers). However, in the contemporary India, the need for such a scheme was equally felt by the service sector which is also in itself a major contributor in economic development and GDP. Listening to the demand of the industry, the government notified the above scheme to benefit the service sector which was earlier liable to register under GST as soon as they crossed the threshold limit of 20 lakh. The scheme was introduced with a dual objection so as to provide for a relief measure to the small service providers and also to ensure increased compliance.

At last, let‟s see both the old vis. a vis. the new composition schemes at a glance.

Head Composition Scheme under CGST Act (Old Composition Scheme – Section 10) Composition Scheme through Notification [New Composition Scheme – N/N 2/2019 – CT (Rate)]
Pay GST As per notified rates (1% or 5%) At the rate of 6%
Aggregate Turnover up to 150/75 Lakh up to 50 Lakh
Document for Supply Bill of Supply Bill of Supply
Input Tax Credit Not Available Not Available
GST Returns Quarterly by 18th –

GST CMP-08 (for tax payment) Annually by 30th April – GSTR-4

Quarterly by 18th –

GST CMP-08 (for tax payment) Annually by 30th April – GSTR-4

Author Bio

Qualification: CA in Practice
Company: U J & CO.
Location: Delhi NCR, New Delhi, IN
Member Since: 29 Apr 2020 | Total Posts: 13
A first class commerce graduate from Delhi University, a Company Secretary and a practicing Chartered Accountant. Also a Co-Founder at UJ LEGAL LLP and Content Writer at TaxGuru. View Full Profile

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12 Comments

    1. ujco says:

      Thanks for reading the article.
      A new restaurant would not be able to avail for the new composition scheme as it is only available to the person who is not eligible to pay tax under tax under Section 10(1) of the Act. Since, restaurant/catering services are covered under Section 10(1), they shall not be eligible to register under the new scheme.
      Moreover, logically, under Section 10(1) they shall be able to pay tax @ 5% which is more advantageous. Also, turnover limit there is higher. Finally, the CGST Amendment Act, 2018 by insertion of second proviso under Section 10(1) has provided some benefits which shall rule out all the problems. Kindly check this for more info.
      I hope all this helps. For more information you can reach out to me.
      Thanks for the comment.

  1. Manvi Aggarwal says:

    Usually I never comment on articles but your article is so convincing that I couldn’t stop myself to say something about it. Very well explained in simplified language. You’re doing a great job, keep it up.
    Look forward for more articles.

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