GST: 28 Key Take-away under Composition Levy

Basic provisions

1. Composition levy is an alternative method of levy of tax for small taxpayers whose turnover is up to Rs. 75 lakhs / Rs. 50 lakhs in case of Special Category States.

2. Special Category States in which the turnover limit for Composition Levy for Central tax and State tax purpose shall be Rs. 50 lakhs are as follows: a) Arunachal Pradesh b) Assam c) Manipur d) Meghalaya e) Mizoram f) Nagaland g) Sikkim h) Tripura i) Himachal Pradesh

3. The option to pay tax under composition scheme will have to be exercised for all States.

4. Option to pay tax under composition levy be exercised prior to the commencement of the relevant financial year.

5. Aggregate turnover will be computed on the basis of turnover on an all India basis.

6.Aggregate turnover will include value of all taxable supplies, exempt supplies and exports made by all persons with same PAN, but would exclude inward supplies under reverse charge as well as central, State/Union Territory and Integrated taxes and cess.

Tax payment, Return and additional compliance:

7. Eligible person opting to pay tax under this scheme can pay tax at a prescribed percentage of his turnover every quarter: i)  Manufacturers, other than manufacturers of Ice cream, Pan Masala, Tobacco products – 2% ii) Restaurant Services – 5%  iii) Traders or any other supplier eligible for composition levy – 1%.

8.Person opting for composition levy will have to pay tax on quarterly basis before 18 of the month succeeding the quarter during which the supplies were made.

9. Composition dealer need to electronically file quarterly returns in Form GSTR-4 by the 18th of the month succeeding the quarter.

10.  The person exercising the option to pay tax under section 10 shall comply with the following other conditions: a) he shall mention the words “composition taxable person, not eligible to collect tax on supplies” at the top of the bill of supply issued by him; and b) he shall mention the words “composition taxable person” on every notice or signboard displayed at a prominent place at his principal place of business and at every additional place or places of business.

Options not available

11. Following persons are not allowed to opt for the composition scheme

a) a casual / a non-resident – taxable person; b) suppliers whose aggregate turnover in the preceding financial year crossed Rs. 75 lakhs; c) supplier who has purchased any goods or services from unregistered supplier unless he has paid GST on such goods or services on reverse charge basis; d) supplier of services, other than restaurant service; e) persons supplying goods which are not taxable under GST law; f) persons making any inter-State outward supplies of goods; g) suppliers making any supply of goods through an electronic commerce operator who is required to collect tax at source u/s 52; h) a manufacturer of following goods(i) Ice cream and other edible ice, whether or not containing cocoa (ii) Pan masala (iii) Tobacco and manufactured tobacco substitutes.

Restriction of specific business transactions:

12. Composition dealer can issue a bill of supply in lieu of tax invoice.

13. Composition taxpayer have to pay GST under reverse charge when he receives inputs/input services from an unregistered person.

14. There is no restriction on procuring goods from inter-state suppliers by persons opting for the composition scheme.

15. Composition dealer cannot collect tax paid by him on outward supplies from his customers.

16. A person paying tax under composition scheme cannot make supplies of goods to SEZ.

ITC provisions:

17. A taxable person opting to pay tax under the composition scheme is out of the credit chain.

18. Registered person making purchases from a taxable person paying tax under the composition scheme cannot avail credit

19. The registered person will not be able to carry forward the excess ITC of VAT to GST if he opts for composition scheme.

20. Allowed to avail the input tax credit in respect of the stock of inputs and inputs contained in semi-finished or finished goods held in stock by him and on capital goods held by him on the date of withdrawal and furnish a statement within 30 days of withdrawal containing the details of such stock held in FORM GST ITC-01.

21. The registered person opting to pay tax under composition scheme is required to pay an amount equal to the input tax credit in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date of exercise of option and In respect of capital goods held in stock on the day immediately preceding the date of exercise of option, the input tax credit involved in the remaining useful life in months shall be computed on pro-rata basis.

Scheme cancellation:

22. The option to pay tax under composition scheme lapses from the day on which his aggregate turnover during the financial year exceeds the specified limit.

23. An intimation for withdrawal from the scheme in FORM GST CMP-04 within seven days from the day on which the threshold limit has been crossed.

24. Any intimation for withdrawal in respect of any place of business in any State or Union territory, shall be deemed to be an intimation in respect of all other places of business registered on the same Permanent Account Number.

25.The registered person who intends to withdraw from the composition scheme can file a duly signed or verified application in FORM GST CMP-04.

26. In case the option to pay tax under composition levy is denied by the proper officer, the person can avail ITC on stock after denial as per order in FORM GST CMP-07 within a period of thirty days from the order.

27. Composition taxpayer is required to furnish the details of stock, including the inward supply of goods received from unregistered persons, held by him on the day preceding the date from which he opts to pay tax under the composition scheme, electronically, in FORM GST CMP-03 within a period of sixty days from the date on which the option for composition levy is exercised.

Penalty provisions:

28. If a taxable person has paid tax under the composition scheme though he was not eligible for the scheme then the person would be liable to penalty and the provisions of section 73 or 74 shall be applicable for determination of tax and penalty.

In short, the objective of composition scheme is to bring simplicity and to reduce the compliance cost for the small taxpayers.