Composition Scheme – GST: Latest Developments

It is a scheme which is mainly formulated for small businesses. Under this scheme, the small businesses enjoy certain benefits such as concessional rate of tax and less compliance burden.

Eligibility

Small businesses, which have aggregate turnover up to Rs. 1Crore in the preceding financial year are eligible to get register under this scheme.  However, the registration under this scheme is optional. In other words, the registered taxpayer whose aggregate turnover is less than Rs. 1 crore can opt not to register for the scheme.

In case of North-Eastern states and Himachal Pradesh, the limit is Rs. 50 lakh.

Similarly, the State of Jammu & Kashmir & Uttarakhand, the limit is Rs. 1 Crore.

Composite Tax Rates

Business SGST CGST Total GST
1. Traders 0.5% 0.5% 1%
2. Manufacturers 1% 1% 2%
3. Restaurants 2.5% 2.5% 5%

Aggregate Turnover

Turnover, in general, is the total volume of a business. The term ‘aggregate turnover’ has been defined in Section 2(6) to mean –

The aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess.

The aggregate turnover is decisive for the eligibility of a supplier to avail the benefit for composition levy.

The aggregate turnover is different from turnover in a State. The former is used for determining the threshold limit for registration as well as eligibility for Composition Scheme. However, the composition levy would be calculated on the basis of turnover in the State.

Conditions

Who are not eligible for Composition Scheme?

1. A service supplier except supplier of Restaurant Service where Alcohol is not served

2. A taxable person engaged in inter-state supplies of goods

3. A non-resident taxable person

4. A taxable person engaged in supply of goods which are not taxable under GST Laws

5. A taxable person engaged in supply of goods through an e-commerce operator

6. A manufacturer of Ice Cream, Pan Masala & Tobacco Products

Restrictions

A taxable person not allowed or shall comply

1. To Charge & collect any tax from the recipient on supplies made by him.

2. To claim any input tax credit (ITC)

3. To procure goods from registered persons, otherwise, he has to pay tax under Reverse Charge Mechanism

4. Mention the words “Composition Taxable Person” on top of every bill of supply, Notice, signboard displayed at a prominent place in his principal place of business including every additional place of business.

Effective date of Composition Levy

The option to pay tax under composition scheme shall be effective from the appointed date or beginning of the financial year. Under no circumstances, this option can be exercised during the middle of a financial year.

Compliance

  • A Composite taxpayer is required to file a return (in Form GSTR 4) on a quarterly basis instead of three returns every month as required under normal circumstances.
  • Due Date: By 18th of succeeding month of the quarter.
  • In addition, the taxpayer, required to file an annual return in Form GSTR 9A.
  • No requirement of invoice-wise details in their returns

Compulsory Switch over to Regular Compliance

Option to pay tax under composition scheme lapses on the day the taxpayer crosses the aggregate turnover limit Rs. 1 Crore or Rs. 75 Lakh as the case may be.

The registered person can also withdraw from the scheme voluntarily.

Thereafter, normal procedure of invoice, record keeping, and filing of returns will be applicable. He will be allowed to claim a credit of Input Tax held in stock or semi-finished goods or finished goods.

Penalties

The proper officer, if has reason to believe that a composition dealer has wrongly availed the benefit under this scheme, then after taking recourse to adjudication, he can direct such person to pay all the taxes which he would have pay under the normal scheme.

Recent Developments

1. A registered person (whether migrated or new registrant), who could not opt for composition scheme, shall be given the option to avail composition till 31st March 2018.

2. Persons providing any exempted service will now be eligible for the composition scheme.

3. 5 Million Registered entities have opted for the composition scheme.

4. Extension of return filing date for composition dealer for Quarter – II : 15th November 2017, earlier 18th October 2017

5. The five-member group of ministers (GoM) would meet representatives of small & medium enterprises, soon, to finalize certain key measures with emphasize on the inclusion of Inter-State Supply, Job-workers, eligibility for Input Tax Credit, etc., under the composition scheme.

The author is a budding tax law professional and can be reached at shreetaxchambers@bsnl.in

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