GST Composition scheme – Present and proposed changes

1. What is composition Scheme?

♠ The Composition scheme is an ‘alternative method’ of levy of tax designed for easing the tax compliance for small taxpayers.

♠ This is not a new concept under GST, this was existing under VAT, Excise and Service tax regime also. This was also called as Tax on Turnover (TOT) scheme.

2. Whether all the tax payers can opt for Composition scheme under GST?  What are the conditions for applying to Composition scheme?

♠  No, persons satisfying few conditions relating to the threshold of aggregate turnover and the type of supplies are only eligible for opting this scheme.

3. What is the Threshold limit for eligibility of the GST Composition scheme?

As on date, the threshold limit for the aggregate turnover is

• 1.0 Cr for other than special category states and
• 0.75 Cr For special category states {i.e. (i)Arunachal Pradesh, (ii) Assam, (iii) Manipur, (iv) Meghalaya, (v) Mizoram, (vi) Nagaland, (vii) Sikkim, (viii) Tripura and (ix) Himachal Pradesh} – {46/2017_CT_13.Oct.17}

Note: The increase in limit to 1. 5Crs. is yet to be notified by the govt.

History:

From 1st Jul’17-to 13th Oct’17, the limit was Rs.75 Lakhs & 50 Lakhs, in place of Rs. 1Cr and 0.75Cr respectively. {8/2017_CT_27.Jun.17}

Proposed changes:

It was suggested by GST council, to increase the threshold limit up to Rs. 1.5 Crs, suitable changes were also made in the act. However, the change is yet to be notified. It may get notified w.e.f. 01.Apr.19.

4. Whether the exempted income to be considered for the aggregate turnover for GST Composition scheme?

Yes. In simple terms, Aggregate t/o means total value of all the businesses of a person with same PAN.

However, below are the points to be noted:

• The Aggregate turnover includes value of Taxable supplies, Exempt Supplies (other than Interest, Discount etc.*), Exports, Inter-state and also Intra-state supplies.

*Note:

It is clarified that the value of supply of exempt services 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 considered. {ROD 1/2017_CT_13.Oct.17 & ROD 1/2019_CT_01.Feb.2019}

• For agents, the aggregate turnover includes the value of supplies made on behalf of their principals
• For job workers, value of finished goods supplied from the place of Job worker, shall be included in the turnover of Principal.

Eg 1: If a person is having 90L income from supply of Goods and 11L from exempted services (1L from Interest and 10L from providing education) such person shall not be eligible for composition scheme.

Eg 2: For the same person, if the entire 11L is from Interest income, such person shall be eligible for composition scheme.

5. Who are the persons not eligible to opt for GST Composition scheme?

Following persons are not eligible to opt for the composition scheme:

1. A casual taxable person or a non- resident taxable person;
2. Supplier who has stock of goods
   1. Purchased from URD and no tax under RCM paid
   2. Imported
   3. Purchased for received from different states

Note: There is no restriction on procuring good from inter-state suppliers, after opting this scheme

• Supplier of services, other than restaurant service and Exempted services (extending loans, deposits..etc) referred above;

Note: W.e.f. 01.Feb.19, the suppliers shall be allowed to supply services to the extent of 10% of the turnover or Rs. 5Lakkhs, whichever is higher.

1. Persons supplying goods
   1. which are not taxable under GST law;
   2. to different states
   3. Persons suppliers making any supply of goods through an electronic commerce operator who is required to collect tax at source under section 52; and
2. A manufacturer of following goods:

#	Classification (Tariff item)	CGST rate
1	2105	Ice cream and other edible ice, whether or not containing cocoa
2	2106	Pan masala
3	24	Tobacco and manufactured tobacco substitutes

{Section 10 (2) of CGST Act, 2017 read with Rule 5 of CGST rules and Sec 5(a)(iii) of CGST amendment act,2018}

Proposed changes:

It was suggested by GST council,

• To extend the composition scheme to service providers
• Keeping the turnover limit as up to Rs. 50 Lakhs,
• The tax rate as 6%

However, the same is yet to be notified. It may get notified w.e.f. 01.Apr.19.

6. Whether the supplier can opt for Composition scheme in one-state and regular in another state?

No, the option for composition scheme shall be exercised on PAN India basis.

7. How to apply for composition scheme?

Composition scheme can be applied:

1. At the time of obtaining the registration
2. After obtaining registration, this can be applied on financial year basis by filing Form GST CMP-02

8. What is the rate of tax applicable on a composition levy?

The registered person opting for composition scheme shall be liable to pay certain % as tax in lieu of the regular tax structure.

Below are the tax rates applicable dealers under composition scheme (Section 10(1) of CGST Act):

#	Category of registered persons	Taxable value	Rate
			From 01.02.2019	Up to 31.01.2019	Up to 31.12.2017
1	Restaurant services: [Suppliers making supplies referred to in clause (b) of paragraph 6 of Schedule II)]	Turnover in the state	5%	5%	5%
2	Manufacturers [Manufacturers ,Other than manufacturers of notified goods]	Turnover in the state	1%	1%	2%
3	Traders [ Any other supplier eligible for composition levy under section 10 and Rules]	Turnover of taxable supplies of “Goods and Services*” in the State	1%	1% (Only for goods)	1%
	Notification ref.	*Services included w.e.f. 01.Feb.2019	3/2019-CT 29.Jan.19	1/2018-CT 01.Jan.18	8/2017-CT 27.Jun.17

9. Whether composition dealer is liable to pay tax under reverse charge mechanism?

Yes, he will be liable to pay the taxes under RCM

• For Services specified u/s 9(3) and also
• For unregistered procurements u/s 9(4)
• At the rates applicable for normal tax payer
• With the quarterly return.

{Rule 5(d) of CGST rules}

10. Whether the tax payers under composition scheme required to file Annual return?

Yes, the suppliers

• Should file the return in Form GSTR-9A shall be filed for the financial year
• The same shall be filed by 31st December, following the end of the financial year.

11. What are the other compliances required?

Apart from filing the returns, following are the few compliance requirements:

• Returns & payment
  • Return in Form GSTR-04 should be filed on quarterly basis
  • Tax also should be paid along with the return
  • 18th of the month following the end of the quarter shall be the due date for return
• “Bill of Supply” should be issued for supply of goods
• No tax shall be collected from the recipients
• Mention the words ―”composition taxable person, not eligible to collect tax on supplies‖ at the top of the bill of supply”
• Mention the words ―”composition taxable person‖ on every notice or signboard displayed at a prominent place”
• Should not make any inter-state supplies

Proposed changes:

It was suggested by GST council, to make

• The payment of taxes on quarterly basis and
• Filing of returns on annual basis,

However, the same are yet to be notified. It may get notified w.e.f. 01.Apr.19.

12. Effective dates for shifting from Composition to Regular or vice a versa.

• The option of changing from regular scheme to composition scheme can be excercised on financial year basis only.
• The option for changing composition scheme to Regular scheme can be done at any point of time during the financial year.

13. What if any of the conditions are violated?

• The registered person shall become the regular person from the date on which such conditions are violated.
• Eg:
  • The turnover exceded 1Cr / 75Lakhs
  • Supplier engaged in Inter-state supplies
  • The service portion exceed 10% of the turnover and also Rs. 5Lakhs..etc/.

14. What are the implications of changes from Regular to Composition scheme and Vice a Versa. ?

The taxable person may have to file different types of intimations, avail / reverse the credit on closing balances..etc. The same shall be discussed in the next article “Implications of changes from Regular to Composition scheme and Vice a Versa”.

15. Summary of proposed changes

Below are the changes suggested by the council in it’s 32nd meeting:

• Turnover for Supplier of Goods:
  • Increase the threshold limit up to 1.5 Crs, suitable changes were also made in the act
• Service providers:
  • To extend the composition scheme to service providers
  • Keeping the turnover limit as up to Rs. 50 Lakhs,
  • The tax rate as 6%
• Returns for composition scheme:

It was suggested by GST council, to make

• The payment of taxes on quarterly basis and
• Filing of returns on annual basis,

However, the same are yet to be notified.

16. What is the effective date for proposed changes?

As per the press release, the proposed changes would get notified with effect from 01.Apr.19

For feed back write to vamshi2112@gmail.com