A ‘Composition Scheme’ is an alternative method of levying tax designed for small taxpayers. If your business is small, but not quite small enough to be GST-exempt, you may be able to use your company’s aggregate turnover to qualify for the composition levy scheme. A simplified ‘Composition Scheme’ has been provided; vide Section 10 of Central Goods and Services Tax Act, 2017 (‘CGST Act, 2017’) for small taxable persons who do not have sufficient knowledge and expertise to comply with the GST requirements relating to records and accounts.

Currently, ‘Composition Scheme’ is available to those whose ‘aggregate turnover’ in the previous financial year did not exceed Rs. 150 lakhs. For Special Category States (Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura,) the limit is Rs 75 Lakh only. [See Notification No. 14/2019-Central Tax, dated 7-3-2019].

Composition & Presumptive Scheme -GST Rate & Limit: –

[CGST Amendment Act, 2018 w.e.f. 01.02.2019 & Notification No. 14/2019 – Central Tax, dated 07.03.2019 & Rule 7 and Notification No. 02/2019-Central Tax (Rate), dated 07.03.2019] 

Applicability Period: – These Rates are applicable from 01 April 2019 to 01st Jan 2020

Threshold Limit:Rs. 1.50 cr (Rs.75 Lakhs for Special Category Sate) from 01 April 2019 to 01st Jan 2020.

Type of Business CGST SGST Total

Composition Scheme

Total

Presumptive Scheme

Manufacturer 0.5% 0.5% 1%
Supplier of food & drinks (restaurant business) 2.5% 2.5% 5%
Traders (Other Suppliers) 0.5% 0.5% 1%
Goods or services or both (deemed as mixed supplies) 3% 3% 6%

Note: Composite Dealer may supply of services up to 10% of turnover in previous financial year or Rs 5 lakhs, whichever is higher, at a 0.5% CGST and 0.5% SGST (Total 1%) rate of tax.

Is liability to pay taxes under Reverse Charge Mechanism covered under the Composition Scheme?

A Composition Dealer has to pay tax under Reverse Charge Mechanism (‘RCM’) wherever applicable. The rate applicable to the supplies is the rate at which GST has to be paid. This means that rate under composition scheme should not be used for reverse charge purposes. Also, no ITC is available for tax paid under reverse charge for a composition dealer.

Pursuant to the Rule 5 of the Central Goods and Services Tax Rules, 2017 the person exercising the option to pay tax under section 10 shall comply with the following conditions, namely:-

(a)….

(b)….

(c)….

(d) he shall pay tax under sub-section (3) or sub-section (4) of section 9 on inward supply of goods or services or both;

Can composition dealer purchase the goods from unregistered dealer has to pay tax under reverse charge on that purchase.

Yes: There is no such restriction on composition dealers to purchase goods only from registered dealers. Therefore, a composition dealer can purchase goods from unregistered dealers. But as per Rule 5 of the Central Goods and Services Tax Rules, 2017, he shall pay tax under sub-section (3) or sub-section (4) of section 9 of CGST Act, 2017 on inward supply of goods or services or both.

It is to be noted that provision of Section 9(4) of CGST Act, 2017 i.e. RCM in case of purchases made from unregistered person was Operative upto 12.10.2017. If the value of Intra-State supplies of goods or services or both is more than Rs.5,000/- per day then RCM is applicable under Section 9(4) of the CGST Act, 2017 [Notification No. 8/2017-Central Tax dated 28th June 2017] 

As the exemption provided by the Notification dated 28th June, 2017 was a partial exemption, therefore, the Central Government decided to amend the said Notification dated 28th June, 2017 to give full exemption in case if Intra-State supplies of goods or services or both received by a registered person from any unregistered person. In view of the above, the Central Government, in exercise of the powers conferred by sub-section (1) of section 11 of the CGST Act, 2017, had issued a Notification No. 38/2017-Central Tax dated 13th October, 2017 applicable with effect from 13/10/2017.

By the said Notification dated 13th October, 2017, the Central Government had deleted the proviso to Notification dated 28th June, 2017, which restrict the exemption for RCM u/s 9(4) of the CGST Act only up to the limit of Rs. 5,000/- in day in case of the value of Intra-State supplies of goods or services or both.

As per CGST (Amendment) Act, 2018, provision of Section 9(4) of the CGST Act, 2017 has been amended and now Reverse charge is not applicable on all inward supplies received from an unregistered supplier. There are some specific services under Real Estate only on which provision of RCM under section 9(4) of the CGST Act, 2017 is applicable. [Refer Notification No. 07/2019-Central Tax (Rate) Dated 29th March, 2019].

Notification No. 07/2019- Central Tax (Rate) dated 29th March 2019 effective from 1st April, 2019.

In exercise of the powers conferred by Section 9(4) of the CGST Act, 2017, the Central Government notified the registered person and goods and/or services which shall be covered under RCM if received from unregistered suppliers. In this regard, the Central Government has issued a Notification No. 07/2019- Central Tax (Rate) dated 29th March, 2019 which has been effective from 01 April, 2019 and will be applicable on “Promoters” only for the ‘specified supplies.

Under the said Notification dated 29th March, 2019, three kinds of supplies have been specified for which ‘promoter’ shall be liable to pay tax under reverse charge.

REMARK:

At present Reverse Charge is not applicable on all inward supplies received from an unregistered supplier under section 9(4) of the CGST Act, 2017. There are some specific services under Real Estate only on which provision of RCM under section 9(4) of the CGST Act, 2017 is applicable. The government perhaps believes that in the absence of the reverse charge and with the increase in composition limit, it is being used as a route to evade tax.

GST composition scheme may come under RCM under Section 9(4) the CGST Act, 2017 for those who opt for the composition scheme, to curb evasion. The government believes the introduction of RCM under the composition scheme will reduce cases of under-declared income. Further, the RCM would likely help the government to monitor the purchases made by composition dealers and help plug the leakage of tax revenues.

It is reported that the law will be changed to introduce an enabling provision to bring in RCM for those who opt for the composition scheme.

*****

Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the authors whatsoever and the content is to be used strictly for educative purposes only.

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2 Comments

  1. Pawan says:

    Can a composition scheme holder supply outword supply on rcm basis…
    If yes who would be liable to pay tax on that outword supply… Composition dealer or recipient of supply..
    Here any chance of double taxation ??

  2. Bhavin Adhia says:

    Dear Sir

    Ours is a small warehousing company, based out of ahmedabad, with an annual warehousing (service) income of less than 150 lakhs.

    Our CA has, since last year opted for section 44AD under the IT act to file annual returns. If we have not to maintain books of accounts under the same act, and also when we are eligible to opt for the composition scheme; how can we keep a track of the expenses and pay GST on RCM basis???

    I am quite confused. Can you pls throw some light. Thanks.

    Kindly mail me on my e mail address. Thanks.
    Bhavin
    9825020395

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