The composition levy is an alternative method of levy of tax designed for small taxpayers whose turnover is up to Rs. 1.5 Crores (Rs. 75 lakhs in case of a In case of North-Eastern states and Himachal Pradesh) [N.N 14/2019-CT(rate) dt. 07-03-2019]
From 1st of April,2019, the composition scheme will also be available to services and mixed goods and services suppliers if they had annual turnover of Rs 50 lakh in the preceding financial year. [N.N- 14/2019-C.T(rate) Dt. 07/03/2019] Small taxpayers can get rid of tedious GST formalities and pay GST at a fixed rate of turnover.
The aim of the article is to understand the nature, objective and purpose of the composition scheme under the GST taxation system regime. The article will be focusing on needs to introduce, criteria, eligibility, conditions, merits and demerits of the composition scheme for the small taxpayers to opt for it.
Please note – “Taxable Turnover” means the Taxable 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 Composition Dealer shall not collect any tax from the recipient on supplies made by him nor shall he be entitled to any credit of input tax as notified u/s 10(4),
Composition scheme can apply only if all units eligible for composition scheme – It is clarified that where any place of business of a registered person that has been granted a separate registration becomes ineligible to pay tax under section 10 (composition scheme), all other registered places of business of the said person shall become ineligible to pay tax under the said section [Explanation to Rule 11(1) of CGST Rules, inserted w.e.f. 1-2-2019].
Intimation for Composition levy [Rule 3 of CGST rules]
Any Unregistered Person who wants to opt for Composition scheme needs to electronically file intimation in FORM GST CMP-01, duly signed or verified. He also needs to file FORM GST CMP-03, having details of stock, including the inward supply of goods received from unregistered persons as on date, held by him within a period of ninety days from the date on which the option for composition levy is exercised.
Any existing registered person who wants to opt to pay tax under the scheme shall file an intimation in FORM GST CMP-02, prior to the commencement of the financial year for which the option to pay tax under the aforesaid section is exercised and shall file FORM GST ITC-03 [Rule 44(4)] within a period of sixty days from the commencement of the relevant financial year.
Once opted for, The Composition dealer needs to issue bill of supply and not Tax Invoice.
As per the CGST (Amendment) Act, 2018 and CGST (Removal of Difficulties) Order, 2019, a composition dealer can also supply services to an extent of ten percent of turnover, or Rs.5 lakhs, whichever is higher. This amendment will be applicable from the 1st of Feb, 2019.
Turnover of all businesses registered with the same PAN should be taken into consideration to calculate turnover. Also as Inserted by the Finance (No. 2) Act, 2019, w.e.f. 1-1-2020, The value of exempt supply of services provided 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 for determining the value of turnover in a State or Union territory.
Who cannot opt for Composition Scheme?
As per section 10(2),the following people cannot opt for the scheme-
The following conditions, as prescribed under Rule 5(1), must be satisfied in order to opt for composition scheme:
Validity of the composition levy is covered by Rule 6 of the CGST Rules.
Following chart explains the rate of tax on turnover applicable for composition dealers:
|Composition Scheme – Applicable GST Rates [Rule 7 of the CGST Act]|
|Type of Business||CGST||SGST||Total|
|Manufacturer||0.5% of the turnover in the State/UT||0.5% of the turnover in the State/UT||1.00% of the turnover in the State/UT|
|Notified Service Providers||3.00%||3.00%||6.00%|
|Restaurants not Serving Alcohol||2.50%||2.50%||5.00%|
|Any other supplier eligible for composition levy||0.5% of the turnover of taxable supplies in the State/UT||0.5% of the turnover of taxable supplies in the State/UT||1.00% of the turnover of taxable supplies in the State/UT|
GST payment be made by a composition dealer
For a Composition Dealer,GST Payment has to be made out of pocket for the supplies made.
The GST payment to be made by a composition dealer comprises of the following:
Returns to be filed by a composition dealer
Originally, Form GSTR-4 was a quarterly return form for those taxpayers who have opted to go for the GST Composition Scheme in the new indirect tax regime.
From FY 2019-20,the periodicity of GSTR-4 is changed to annually, and it should be filed by 30th April for every financial year.
All business who have opted for composition scheme will now have to file Form GST CMP-08 applicable from April 2019 for the financial year 2019-20 onwards, that needs to be filed by 18th of the month after the end of the quarter.
Declaimer: The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. The author does not accept any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in Reliance thereon. No part of this document should be distributed or copied without express written permission of the author.
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