Word Composition is derived from a Latin word Componere, which means “Put Together”

It is a type of Indirect Tax in order to provide an comfort to the assessee from complying with the requirement of paying tax on the value addition by maintaining the detail of inputs and outputs, an option is provided to the assessee to opt for “put together scheme”.

The objective of composition scheme is to bring simplicity and to reduce the compliance cost for small taxpayers. The taxpayers having an aggregate turnover not more than Rs. 1 Crore (Rs. 75 Lakhs in Special Category Notified States) is eligible to opt for composition scheme.

Procedural Compliances for GST Composition Taxpayer

The Following are the procedural compliances which are required to be followed by every Composition Taxpayer :

  • Aggregate Supply should not exceed Rs. 1 Crore/Rs. 75 Lakhs
  • Bill of supply to issued instead of GST Invoice
  • No GST shall be charged on invoice (i.e. not to be collected from recipient)
  • No ITC shall be available
  • Return is to filed in Form GSTR-4 quarterly upto 18th of succeeding month of quarter end
  • Inter-state supply is not allowed
  • Tax is to be paid at Composite Rate

Meaning of Aggregate Supply for Composition Scheme under GST

The Aggregate Supply should include the following supplies :

(i) All Taxable Supplies

(ii) Exempt Supplies

(iii) Export of Goods or Services or both

(iv) Inter-state supplies of a person having same PAN

The Aggregate Supply should exclude the following supplies :

(i) Central Goods and Service Tax (CGST)

(ii) State Goods and Service Tax (SGST)

(iii) Union Territory Goods and Service Tax (UTGST)

(iv) Integrated Goods and Service Tax (IGST)

(v) Cess

(vi) Value of Inward Supplies subject to Reverse Charge

GST Rates to be applicable for Composition Taxpayers

Where the GST is to be paid by recipient of the Goods, the Time of Supply shall be EARLIER OF:

(i) Manufacturers other than those notified by government @0.50% CGST and 0.50% SGST/UTGST

(ii) Suppliers making supplies as referred to in clause (b) of para 6 of Schedule-II @ 2.50% CGST and 2.50% SGST/UTGST

(iii) Other Suppliers @ 0.50% CGST and 0.50% SGST/UTGST

Clause (b) of para 6 of Schedule-II states “supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration.” The scope of this clause covers Restaurant, Catering, Mess or any other service contract where goods as food or drink is supplied for human consumption (other than alcoholic liquor for human consumption).

*As per the CGST (Amendment) Act, 2018, a composition dealer can also supply services to an extent of 10% of turnover, or `5 Lakhs, whichever is higher. This amendment will be applicable from the 1st of Feb, 2019.

*CBIC has notified the increase in limit to Rs. 1.50 Crores from Rs. 1 Crore.

*As per 32nd GST Council Meeting held on 10th Jan 2019, Service Providers can opt into the Composition Tax Scheme, and the Government has set the threshold turnover for service providers at `50 Lakhs to be eligible for this scheme.

Validity of Scheme of Composition Levy

The Scheme shall be valid upto which the assessee complies with the requirements of Section 10 under which the registration was granted under the said scheme.

However, in case of any, composition taxpayer contravenes the provision of Section 10 then option to pay tax under composition scheme shall lapse and he shall require to pay tax under Section 9(1) under Normal Levy. He shall issue GST Invoice instead of Bill of Supply from the date of cessation of Composition Scheme.

Further, he shall require to file an intimation for withdrawal in prescribed form within 7 Days from the cessation of Composition Scheme. The assessee shall be allowed to avail the benefit of Input Tax Credit in respect of stock of inputs and stock contained in semi-finished or finished goods held in stock and on capital goods held on the date of filing intimation of withdrawal.

Also, he is require to furnish a statement within 30 Days from the date of filing intimation of withdrawal of such option, containing the details of such stock held in prescribed form on the GST portal.

(Any correction and feedback would be greatly appreciated, kindly mail on deepakjoshi726@hotmail.com or comment here.)

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  1. Dharmesh Gupta says:

    Please clearyfy that if a composisition dealer registered us 10 i.e.normal comp.dealer who has a rental income along wirh other to of goods after 1.2.2019 which is less than 5 lacs say 400000/-lacs pa &other sales 40lacs.than this rental service if commercial shall be taxable @1% or 18%?

    1. SUNIL MINOCHA says:

      Considering the CGST Amendment Act 2018 applicable w.e.f. 01-02-2019, wherein the Composition dealer can also supply service to the extent of 10 % of turnover or Rs. 5 Lakhs higher of the two, composition rate of 1% shall be applicable and not 18% towards rental service.

    1. deepakjoshi says:

      Composition u/s 10 can be opted for services mentioned in clause (b) para 6 of Schedule-II, provided prescribed conditions are satisfied.
      However, composition can’t be opted for any service other than mentioned in clause (b) para 6 of Schedule-II before the notification date.

    1. deepakjoshi says:

      The Finance Act, 2016 had amended section 206C to cover more transactions. The amendments brought in section 206C by Finance Act, 2016 are applicable from 1st June 2016.
      Under section 206C the seller has to collect Tax at Source (TCS) at the rate of 1% from purchaser while selling the specified items or services beyond specified limits.

      Following assesses which are liable to collect TCS :

      1. A Central Government or a state Government
      2. Any local authority, or corporation or authority established under any Central, State or Provincial Act
      3. Any company, firm or cooperative society
      4. An individual or Hindu undivided family who is liable to audit as per provisions of section 44AB during the financial year immediately preceding the financial year in which the goods are sold or the services are provided.

      The buyer may be any person. The status of buyer is irrelevant.

      Sale of motor vehicle exceeding Rs.10,00,000 in cash or any other mode is covered under section 206C.
      However, Rs.10,00,000 limit is for individual motor vehicle, and shall not be applicable in case of transfer by Manufacturer to Dealers.

  2. S.s.aravindhan says:

    PL clarify whether house rent and commercial rent received comes under RS.500000 limit of services. If so what is the rate of tax for commercial rent. Whether we have to pay gst on house rent or not

    1. deepakjoshi says:

      According to the GST Act, renting out of an immovable property would be treated as a supply of services. When any property is leased out (or let out) including a commercial, industrial, or residential property for business (either partly or wholly), it would attract GST under normal levy @18%, if turnover exceeds threashold limit.

      Council has decided to provide a benefit of composition scheme to service providers, which was not so till now. The threshold limit of turnover in the preceding financial year would be INR 50 Lakh for supplier of services or mixed suppliers with a Tax Rate of 6% (3% CGST + 3% SGST)

    1. deepakjoshi says:

      Yes outdoor caterers can avail the composition scheme at Tax rate of 2.50% each for SGST/ UTGST and CGST, read with clause (b) para 6 of Schedule-II as stated above

      1. vbnctd says:

        Sec 10(2)(c) prohibits interstate outward supply of goods. Hence it is pertinent to note that the caterers cannot undertake other state orders. Is my presumption is right.

  3. sandeep jain says:

    As per notification dated 01.01.2018, turnover in case of traders has been defined as ‘ Turnover of taxable supplies of goods’.

  4. Yogesh Agrawal says:

    I think the Rates are not updated as per 32 and 33 gst council meeting. The rate on Manufacturers are now 0.5% as well.

    1. Yogesh Agrawal says:

      Yes you can cancel but proper reason is required to have been given by you for this cancellation.

      As we know that in 32 council meeting the limit for registration has been increased to 40 lac so if your t/o is less than 40 lac then you can file cancellation easily.

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October 2020