Highlights of Composition Scheme under GST incorporating provisions of GST Composition Rules

Several significant milestones towards the smooth role out of GST have already been achieved by the government. Four Major bills relating to GST have already been passed by Lok Sabha. All major rules for implementation of GST have also been issued in public domain.

In order to give a big relief to MSME sector, government has made a significant reduction in composition rates:

  • Earlier it was proposed to levy 1% composition rate for trader and 2.5% for manufacturer.
  • Further composition scheme was not allowed for a supplier of services.
  • Now in the bill as passed by Lok Sabha, 1% rate is proposed for a manufacturer instead of earlier 2.5%.
  • Further 0.50% of composition rate is proposed in case of a trader instead of earlier 1%.
  • Further the composition scheme is proposed to be made available to Restaurant Sector with a composition rate of 2.5%.

Further Requirement to seek permission from proper officer for composition scheme is dispensed with under the GST Law as passed by Lok-sabha.

Highlights of Provisions relating to Composition Scheme are as follows:

1. Scheme is available if Aggregate Turnover in the preceding financial year did not exceed Rs. 50 Lakhs.

2. Intimation by assesse if opting for Composition Levy:

Sr. No. Situation Requirement to Intimate Relevant Form Additional Requirement (If any)
1 Migration from old tax regime Either prior to appointed day, or within 30 days from that day. GST CMP-01 Furnish the details of stock in Form GST CMP-03 within 60 days from the date of opting composition.
2 New Registration He may opt to pay tax under composition while filing registration form GST REG-01
3 Already Registered and paying normal tax Prior to commencement of the Financial Year for which option is being exercised GST CMP-02 Furnish a Statement in Form GST ITC-3 in respect of its Stock within 60 days from commencement of financial year.

3.Effective date for composition levy:

Sr. No. Situation Effective Date for Composition Levy
1 Migration from old tax regime Appointed date
2 New Registration Effective Date of Registration
3 Already Registered and paying normal tax Commencement of the Financial Year

4. Rate of Tax under the Composition Levy:

Sr. No. Category of Registered Persons Rate of Tax
1 Manufacturers, other than manufactures of notified goods 1%
2 Supply of goods being food or any other article for human consumption or any drink (except alcoholic liquor for human consumption) 2.5%
3 All other eligible supplier 0.5%

5. Composition Scheme is not available to a person if:

(a)    He is engaged in supply of services except supply of goods being food or any other article for human consumption or any drink.

(b)   He is engaged in making any supply of goods which are not leviable to tax under this act.

(c)    He is engaged in making any Inter-State outward supply of goods.

(d)   He is engaged in making any supply of goods through Electronic Commerce Operator who is required to collect TCS.

(e)   He is a manufacturer of notified goods.

(f)     He is a casual taxable person or a non-resident taxable person.

(g)    He is a dealer registered under earlier taxes being migrated to GST regime, and goods held in stock by him on the appointed day have been purchased from other state/ Imported/ received from branch situated outside the state.

(h)   He is a dealer paying normal taxes under GST and subsequently opting for composition scheme, and the goods held in stock by him have been purchased from an unregistered person if he had not paid the taxes under reverse charge on those goods.

6. Restriction for Composition Levy:

(a)    He shall not collect any tax from the recipient on supplies made by him

(b)   He shall not be entitled to any credit of input tax.

(c)    He shall issue Bill of Supply instead of Tax Invoice for every supply made by him.

(d)   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.

(e)   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.

(f)     He shall pay tax under Reverse Charge on inward supply of goods or services or both received from un-registered persons.

7. Withdrawal from the Composition Scheme:

Sr. No. Scenario Time Limit Relevant Form Additional Requirement
1 Voluntary Withdrawal by the assesse Before the date of such withdrawal GST CMP-04 In case of withdrawal from composition, a statement containing details of Stock needs to be filed in Form GST ITC-01 within 30 days from the date of withdrawal from composition.
2 Ceased to satisfy any of the conditions of composition levy Within 7 days of occurrence of such event GST CMP-04
3 Withdrawal by Proper Officer:

If he has reason to believe that the registered person was not eligible to pay tax under composition or has contravened any such provisions

SCN to be Issued by Officer GST CMP-05
Reply to SCN to be submitted within 15 days of receipt of SCN. GST CMP-06
Issue of Order by Officer within 30 days of receipt of reply to SCN. GST CMP-07

(Disclaimer: This write up is based on the understanding and interpretation of author and the same is not intended to be a professional advice.)

[The author is a Chartered Accountant and can also be reached at [email protected]]

Composition Scheme under GST: Key Features, Eligibility & Benefits

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Qualification: CA in Practice
Location: Raipur, Chhattisgarh, India
Member Since: 09 May 2017 | Total Posts: 31
Nitin Goyal is a Practicing Chartered Accountants and his core area of expertise includes Income Tax, Goods & Services Tax, Customs, and Financial Valuations. He has completed his Chartered Accountancy in Nov’2015. He secured All India Rank- 48 in his Final Exams. He is also a qualified Compan View Full Profile

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  1. Shubham Goyal says:

    Very nice article and easy to understand.
    Its a very welcome step by Govt for small assessee, encouraging for more registration. One issue i found is with reverse charge mechanism on purchase made from unregistered person, that will make it little complicated and businessman might not look to such pain. Further, sir if u can tell more about reverse charge mechanism in this scheme, that would be great.

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September 2021