Is India is likely to bring the composition scheme under the reverse charge mechanism. It is learnt that the government will move an amendment to the GST law in the budget session to introduce an enabling provision to prescribe the mechanism where it deems necessary.

How it will be done – The law will be changed to introduce an enabling provision to bring in reverse charge mechanism wherever Govt. want. The thinking is that at least in the case of composition scheme the reverse charge should be there.

The reverse charge provision, which is suspended for now, was only meant for an unregistered entity supplying goods or services or both. In reverse charge, those taking the goods or services would levy and collect the tax on a reverse charge basis, ensuring that it’s paid. Under the composition scheme, those with turnover of up to Rs. 1 crore can pay one to five percent of that as tax. This is set to be raised to Rs. 1.5 crore. The rate of composition tax is 1% for traders and manufacturers and 5% for restaurants.

A dealer registered under composition scheme is not required to maintain detailed records.  However, a dealer is required to file a quarterly return GSTR-4 by 18th of the month after the end of the quarter.

Also, an annual return GSTR-9A has to be filed by 31st December of next financial year.

The GST council has expressed concern for collections under the composition scheme were low. The tax paid under the composition scheme is just Rs. 300 crores so far by more than 1.6 million businesses that have registered for it hinting at suspicion of large-scale evasion because if businesses are claiming turnover less than Rs. 20 lakh than why have they sought registration at all.  They would be exempt in any case.

The feeling perhaps with GST Council is that in the absence of the reverse charge and with the increase in composition limit, it is being used as a route to evade tax. The tax collected from composition dealers is very low with many of them are declaring less than Rs. 20 lakh annual turnover. Hence reverse charge may help the government to monitor the purchases of composition dealers and help plug the evasion/leakage.

The GST Council may feel that the law needs to be amended to allow for the imposition of reverse charges wherever there may be significant evasion. This reverse charge mechanism will create a disincentive for remaining in the composition scheme and dealers may move to the regular scheme.

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10 responses to “Composition scheme may come under reverse charge mechanism”

  1. joshiaj says:

    Dear Annapoorna,

    Thanks for your input.
    Actually, this was a typographical mistake (Cut-Paste) that no return is to be filed for composition dealer. A dealer registered under composition scheme is not required to maintain detailed records. A dealer is required to file a quarterly return GSTR-4 by 18th of the month after the end of the quarter. Also, an annual return GSTR-9A has to be filed by 31st December of next financial year. Last dates for two quarters ending on 31.12.2017 have been extended.

  2. joshiaj says:

    Dear Salmam & Anand,

    The enhancement of threshold for composition scheme to Rs. 1.5 crore (from 1 crore) was announced in 23rd GST council Meeting. In 26th GST council meeting it was expected that the threshold will be increased to 1.5 crores but the 26th meeting has not decided this point and it has not been enhanced so far.

  3. Annapoorna says:

    Sir,

    A very good write!

    The write says ‘Under the composition scheme, those with turnover of up to Rs. 1 crore can pay one to five percent of that as tax and need not file GST returns.’ But Composition dealers have to file quarterly returns in GSTR-4. Please can you clarify?

    TIA

  4. ANAND NIPPANI says:

    I repeat the question of Salman.
    Composition scheme maximum limit is Rs. 1.5 crores, then why have you said it’s 1 crore?

    Reply

  5. Chandra Kishore vandhare says:

    Why the government is making pressure for revenue on small businessman and everyday giving tension to Indian public.
    GST Council should have to adopt previous taxation system with changing uniform rates in all states because every professional and businessman are unable to move in any other activity except GST

    So Modi Ji Namo Namo
    Be aware with your spooning persons and be practical with involving professionals whose are practical on taxation for India since many many years successfully

    Desh Tabhi tak rahega jab tak janta rahegi
    GST is terrable for indians at present

  6. Mohana Rao says:

    Sir, Thanks for sharing good and happy news. in my opinion, it is very nice good thing to applicable the RCM to composition dealers. All registered dealers may feel very happy and free from RCM work. Government should get good revenue from composition dealers.

  7. Rajneesh harsh says:

    Sir. Thanks for sharing valuable information. But this move will totally discourage the composition scheme which is being made more flexible in GST council meetings earlier. Government is going in which direction god knows only in respect to GST. Hope this move not take any affect.

  8. Salman says:

    Composition scheme maximum limit is Rs. 1.5 crores, then why have you said it’s 1 crore?

    • Pralay Chakraborty says:

      1.5 crores was proposed by GST council which is yet to be enacted. Hence, unless enacted limit is 1 crore.

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