With every emerging tax regime there comes compliances with statutory provisions that needs to be adhered in a efficient and timely manner. With the introduction of GST in India there comes compliances which could have been a challenge to small businesses. However to protect the interest of small businesses befitting provisions exists in GST by the name Composition Scheme. In the same tune as existed in the previous laws. Several State Governments had provisions for payment of a Composition levy of VAT for Specified small businesses which made compliance of tax laws easier without having to maintain copious records, registers and returns.
Section 10 of the Central Goods and Services tax Act 2017 and Composition Rules contains the provision of Composition Scheme. In this article take you through the provisions of composition Scheme.
Prior Conditions to opt for Composition Scheme
|Limit for Aggregate Turnover in previous Financial Year||Ø It should be Less than Rs 75 Lakh in preceding year (Rs. 50 lakhs in special category states*) |
Ø Aggregate Turnover Includes Taxable supply, Exempt Supply, Non Taxable supplies and Export turnover.
|Limit for Aggregate Turnover in current Financial Year||Ø The scheme is available for Aggregate Turnover of all the GSTINs Issued on a single PAN being less than equal to 75 lakh|
|When to Opt||For Registered Assessee – At the Beginning of Financial Year |
For Newly Registered Assessee – At the time of applying for registration
For migrated Assessee and new registration who did not opt the scheme at the time of registration – up to 30th September 2017
|Who Can Opt||Ø Manufacturer except Manufacturer of certain Specified Goods. |
Ø Trader of Goods
Ø Restaurants Service Provider
Service Provider other than restaurants cannot opt for composition Scheme
|Applicable for all GSTINs||Composition Scheme has to be opted for all the GSTINs, issued on a single PAN|
|Who cannot Opt||Service Provider other than restaurants |
Manufacturer of specified goods. i.e Ice cream, Pan Masala, Tobacco and Substitute of Tobacco
Limitations on Dealer opting for Composition Scheme
|Cannot make inter-state supply||Whereas Composition dealer can purchase from inter state|
|Cannot sell through E-commerce operator||It is specifically stated in law|
|Restaurants Cannot serving liquor||Composition scheme is not applicable to person supplying goods or services on which GST is not applicable. Liquor is not subject to GST.|
|Composition opted for one GSTIN shall e applicable on all GSTINs||A person who has opted for composition scheme for 1 GSTIN has to mandatorily opt for all GSTIN on same PAN in same/other state.|
|No Input tax Credit available||Input Tax Credit on purchase of Input goods or services shall not be available for dealer opting composition scheme|
|Cannot collect Tax||A person opting for composition scheme cannot charge GST on its Invoice.|
|Payment of Tax on Exempted Goods also||A composition dealer also selling exempted goods has to even pay tax under composition scheme on such exempted goods also.|
|Bill of Supply||It is mandatory for composition dealer to mention “composition taxable person, not eligible to collect tax on supplies” at the top of the bill of supply issued by him|
|Board on display||It is mandatory to 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.|
|Ineligibility on one GSTIN will apply to all||If one of the GSTIN becomes ineligible of being working in the scheme all the other GSTINs issued on same PAN will ne ineligible to work|
|New Assessee- To opt scheme||At the time of registration he has to select registration as a composition Dealer.|
|Existing Registration-To Opt Scheme||CMP-02 before the commencement of Financial year |
ITC-03* within 60 days of commencement of financial year.
|Return||Quarterly return in GSTR-4|
|Exit from Scheme||The dealer shall file a form CMP-04 within 7 days from when he ceases to be liable to work in the scheme or voluntarily applies for the exit from the composition scheme.|
*Form ITC-03 is to be filed for reversal of credit taken on stock held at the beginning of the year for which composition scheme is opt and if credits are insufficient it has to be paid in Cash.
Applicability of Reverse charge
Reverse Charge would be applicable on composition dealer as it applies to normal dealer and there is no relaxation in this provision. So therefore the tax has to be paid by composition dealer if any Inward supply of goods /services the tax on which is notified to be paid by recipient u/s 9(3) or on inward supplies from unregistered person as per section 9(4) shall be paid by the composition dealer over and above the tax which he is liable to pay on turnover and the credit of this tax paid shall also not be available to the composition dealer.
So to conclude at the end It can be said that the Composition scheme simple and brings the ease of doing business with less complications in provision of law and few compliances to the small business as dealer opting composition scheme are required only to file 1 return quarterly and no credit is available to the him
Restriction of operation through E-commerce operators and inter state transactions by a composition dealer would be regressive to the growth of MSME who wish to expand business via technology but is unable to cope up with the main stream compliances during the expansion phase.
(Author CA Utsav Dogra can be reached at email@example.com)