There would always be a segment of taxpayers who would find it difficult to completely fulfill the compliance requirement of tax laws, may be due to their small size or nature of their operations. From the tax collector view-point also, the cost of collecting tax from such tax payers is far more in percentage terms than the tax collected from them but this argument cannot be used to exempt them from payment of tax. To meet this dual objective of simplicity for tax collector and tax payer, a scheme called Composition Scheme is offered to taxpayer, by which the taxpayers are given the option to pay an amount calculated on some parameter in lieu of tax calculated based on complex calculations expected by that law. In the GST law also, the composition schemes will be offered to certain set of taxpayers.

Below information/ detail is based on The Central Goods & Service tax Act, 2017 and Final Composition Rule as on 1st June, 2017.

Let us understand this topic in details:

AGGREGATE TURNOVER:

“aggregate turnover” means the aggregate 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;

There is a certain amount of ambiguity as to whether the value of inward supplies would form part of ‘aggregate turnover’ since the definition covers all taxable supplies and excludes only inward supplies to the extent liable to tax under reverse charge mechanism.

In our view aggregate turnover under GST is calculated as follows:

Sr. No. Particulars Treatment
1. Outward Taxable Supplies Included
2. Outward supplies in case tax is payable under reverse charge basis by the recipient Not Included
3. Exempt Supplies (Nil rated, Wholly exempt or Non taxable) Included
4. Export of Goods or Service Included
5. Interstate Supplies Included
6. Central Tax, State Tax, Union Territory Tax, Integrated tax, Cess Not Included
7. Inward Supplies including inwards supplies on which tax is payable under reverse charge basis by the recipient. Not Included

PERSON ELIGIBLE TO PAY TAX UNDER COMPOSITION SCHEME

Only registered person whose ‘aggregate turnover’ (aggregate of turnover in all States having same PAN) does not exceed Rs. 50.00 lakhs in the preceding financial year will be eligible to opt for payment of tax under the composition scheme.

RATE OF TAX

The rate of tax under composition scheme would be as under:

Categories of registered person Central

Rate

State / UTGST Rate Total

Rate

Manufacturer other than goods notified 1.00% 1.00% 2.00%
Other Supplier like agent, Traders 0.50% 0.50% 1.00%
Composite supply of food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption) Example: Restaurants, Eating Joints, Mess, Canteens, Outdoor Caterer, etc 2.50% 2.50% 5.00%
Service Provider NA NA NA

Note:-A taxable person opting for composition scheme will be required to pay tax on supplies taxable under RCM [Section 9(3) & Section 9(4)] at regular rates and not the composition rate.

Tax under composition is calculated by above rate on ‘turnover in state or turnover in union territory’ which means:

Sr. No. Particulars Treatment
1. Taxable Supplies Yes
2. Exempt Supplies (Nil rated, Wholly exempt or Non taxable) Yes
3. Export of Goods or Service Yes

PERSON NOT ELIGIBLE TO PAY TAX UNDER COMPOSITION SCHEME

– Supplier making inter-state outward supplies of goods.

– Supplier engaged in making supply of goods through Electronic Commerce Operator (it appears to be against the vision of Digital India)

– Manufacturer of such goods as may be notified by the Government

– Casual taxable person or a non-resident taxable person

– Supplier of services other than discuss in above table i.e. food/restaurants service

– Supply of goods which are not leviable to tax under this act

CONDITIONS FOR OPTING TO PAY TAX UNDER COMPOSITION SCHEME

– Composition dealer shall not collect any tax from the recipient on supplies made by him.

– Composition dealer shall not be entitled to any credit of input tax paid on his inward supplies.

CONTENT OF BILL OF SUPPLY

If a registered taxable person supplying Exempted goods/services or paying tax under composition scheme (sec-10), then the supplier shall issue bill of supply instead of Tax Invoice which shall contains the following details:

Particulars Check
Name, Address & GSTIN of the supplier Y
A consecutive serial number, can be in one or more multiple series but unique for a FY (NOT EXCEEDING SIXTEEN CHARACTER) Y
Date of its issue Y
Name, Address & GSTIN/UIN of the recipient Y
HSN Code or SAC Y
Description of goods or service Y
Total Value Y
Discount or Abatement Y
Taxable Value Y
Signature or digital signature of supplier or his authorised representatives Y

COMPOSITION SCHEME IS AN OPTION

The taxable person should make an application exercising his option to pay tax under this scheme. There are three possibilities in which such option can be exercised:

Option Procedure Effective Date
Taxable Person migrating from existing registration to GST registration (all existing persons who want to opt composition under GST) Exercising Option in Form GST CMP 01 prior to appointed date or within 30 days after the appointed date From the appointed date.
Taxable Person obtaining new registration under GST laws Such option can be exercised at the time of obtaining registration under section 22 in Part B of Form GSTREG-1 From date of registration
Taxable Person switching from normal levy in one FY to composition scheme in next FY Such option can be exercised by filing intimation in Form GST CMP 02 prior to commencement of the year for which the option to pay tax under composition scheme is exercised. From the beginning of the financial year
Note: Composition scheme once granted, the eligibility would be valid lifetime unless the permission is cancelled or is withdrawn or the person becomes eligible for this scheme

 RETURN COMPLIANCE UNDER COMPOSITION SCHEME

SECTION Person Liable FORM Due date for payment of tax Due Date for filing of return Periodicity

 

39(2) Composition Dealers GSTR-4 On or before the due date of filing of return i.e 18th Within 18th days after end of such quarter Quarterly
39(2) Composition Dealers GSTR-4A Auto-populated details of inward supplies made available to the recipient registered under composition scheme on the basis of FORM GSTR-1 furnished by the supplier.
44(1) Composition Dealers GSTR-9A 31st December of next fiscal year Annual

 TAX/INPUT TAX CREDIT TREATMENT IN SPECIAL CASES

Migration from Composition Scheme (Current Regime) to Normal Levy (GST Regime)

– A registered person shall be entitle to take credit of eligible duties* in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day. (Not on Capital Goods)

– Every registered person shall submit an application within 60 days from the appointed day in Form GST TRAN-1 shall specify separately the amount of tax or duty to the credit said person shall be entitled and shall also specify separately details of stocks held on the appointed day

– The registered person shall subject to following condition is eligible to avail the above credit:-

  • Such inputs or goods are used or intended to be used for making taxable supplies under this Act
  • Registered person is not paying tax under section 10e. composition scheme.
  • The said registered person is eligible for input tax credit on such inputs under this Act;
  • The said registered person is in possession of invoice or other prescribed documents evidencing payment of duty under the existing law in respect of such inputs;
  • Such invoices or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day; and

* Eligible Duties

– The additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957;

– The additional duty leviable under sub-section (1) of section 3 of the Customs Tariff Act, 1975;

– The additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act, 1975;

– The additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textile and Textile Articles) Act, 1978;

– Te duty of excise specified in the First Schedule to the Central Excise Tariff Act, 1985;

– The duty of excise specified in the Second Schedule to the Central Excise Tariff Act, 1985;

– The National Calamity Contingent Duty leviable under section 136 of the Finance Act, 2001

Note:- Credit of value added tax in case State of Goods & Service Tax Act

Migration from Normal Levy/Composition Scheme (Current Regime) to Composition Scheme (GST Regime)

– A registered person is not eligible to be carried forward input tax credit carried forward in the return.

– File an intimation in Form GSTCMP-01 to opt for composition scheme, prior to appointed day but not later than 30 days after the appointed day.

– Where the intimation in FORM GST CMP-01 is filed after the appointed day, the registered person shall not collect any tax from the appointed day but shall issue bill of supply for supplies made after the said day.

– There is no specific provision in GST law requiring the tax payer to pay/debit any tax credit (Excise, CVD, SAD, additional excise duty under central law and VAT under state laws, etc.) involved in inputs, inputs contained in semi-finished or finished goods as on the appointed date.

Conditions:- The goods held in stock by him on the appointed day should have not been include

– purchased in the course of inter-State trade or commerce (Not exports) or

– imported from a place outside India or

– received from his branch situated outside the State or

– received from his agent or principal outside the State

– The goods held in the stock on the appointed by him have not been purchased from an unregistered supplier and where purchased, he pays the tax under sub-section (4) of section 9 (Clarification would be come in this matter)

DETAILS TO BE FURNISHED IN FORM CMP-03 WITHIN 60 DAYS FROM THE APPOINTED DAY BY THE PERSON WHO OPTS FOR COMPOSITION SCHEME AT THE TIME OF MIGRATION

– Stock of purchases made from registered person under the existing law

Sr. No. GSTIN Name of the supplier Bill/ Invoice No. Date Value of Stock VAT Central Excise Service Tax Total
1.
2.
3.
Total

– Stock of purchases made from unregistered person under the existing law

Sr. No. Name of unregistered person Address Bill/ Invoice No. Date Value of Stock VAT Central Excise Service Tax Total
Total
Details of tax paid Amount

Debit Entry No.

Switching over from Normal Levy (GST Regime) to Composition Scheme (GST Regime)

– He shall pay an amount equivalent to the credit of input tax in respect of inputs held in stock and inputs contained in semi- finished or finished goods held in stock by way of debit in electronic credit ledger or electronic cash ledger.

– On capital goods as reduced by such percentage as may be prescribed.

– On the day immediately preceding the date of exercising composition option

– Any balance lying after payment of such amount shall be lapse.

– Furnish a statement in FORM GST ITC-3 within sixty days from the commencement of the relevant financial year.

REVERSAL OF INPUT TAX CREDIT (DETAILS IN FORM GST ITC-03)

For inputs lying in stock, and inputs contained in semi-finished and finished goods lying in stock

– The ITC shall be calculated proportionately on the basis of corresponding invoices on which credit has been availed by the registered taxable person on such inputs

For capital goods lying in stock

– The input tax credit involved in the remaining residual life in months shall be computed on pro- rata basis taking the residual life as five years;

Illustration

Capital goods have been in use for 4 years, 6 month and 15 days.

The residual remaining life in months= 5 months ignoring a part of the month

Input tax credit taken on such capital goods=Ç

Input tax credit attributable to remaining residual life=C multiplied by 5/60

– The amount determined above shall form part of the output tax liability of the registered person and the details of the amount shall be furnished in FORM GST ITC-03

– The amount shall be determined separately for input tax credit of IGST and CGST.

– Where the tax invoices related to the inputs lying in stock are not available, the registered person shall estimate the amount based on the prevailing market price of goods on the effective date of occurrence of any of the events i.e opt for composition scheme & taxable supply becomes wholly exempt as the case may be.

Switching over from Composition Scheme (GST Regime) to Normal Levy (GST Regime)

– A person shall be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock and on capital goods.

– On the day immediately preceding the date from which he becomes liable to pay tax u/s 9

– Input tax credit cannot be availed in respect of any supply of goods or services or both to him after the expiry of 1 Year from the date of issue of tax invoice relating to such supply

– The ITC on capital goods shall be claimed after reducing the tax paid on such capital good by 5% per quarter of year or part thereof from the date of invoice or such other documents.

– The registered person shall make a declaration in FORM GST ITC-01 to the effect that he is eligible to avail of ITC.

– The declaration shall specify the details relating to the input lying in the stocks, inputs contained in semi-finished or finished goods lying in stocks or as the case may be capital goods.

– The declaration shall be duly certified by a practicing chartered accountant or cost accountant if aggregate value of claim on account of central tax, state tax, integrated tax & union territory tax exceeds Rs.2.00 lakhs.

Summaries table for existing dealer at the time of migration

Current Regime GST Regime Input Tax Credit on Stock
Composition Normal Yes (Subject to conditions)
Normal Composition No
Composition Composition No

VALIDITY OF COMPOSITION LEVY/ WITHDRAWAL FROM COMPOSITION SCHEME

– The registered person opt for composition scheme may not file a fresh intimation every year and he may continue to pay tax under scheme & scheme remains valid so long as he satisfies all the conditions mentioned in the acts and rules.

SUO MOTTO BY DEALER

– The registered person who is not eligible to continue under composition scheme shall file an intimation of withdrawal in FORM GST CMP-04 within 7 days of occurrence of such event rendering him ineligible to continue under composition scheme and shall issue tax invoice for every supply made

– The registered person who intends to withdraw from the composition scheme shall, before the date of such withdrawal, file an application in FORM GST CMP-04.

BY PROPER OFFICER

– Where the proper officer has reasons to believe that the registered person was not eligible to pay tax under composition scheme or has contravened the provisions of the Act or these rules, he may issue a notice to such person in FORM GST CMP-05 to show cause as to why option to pay tax under composition scheme should not be denied.

– Registered person shall file reply in FORM GST CMP-06 within fifteen days of the receipt of such notice.

– Within thirty days receipt of such reply, the proper officer shall issue an order in FORM GST CMP-07, either accepting the reply, or denying the option to pay tax under composition scheme from the date of option or from the date of the event concerning such contravention, as the case may be.

– Dealer shall furnish a statement in FORM GST ITC-01 containing details of the stock of inputs and inputs contained in semi-finished or finished goods held in stock by him on the date on which the option is withdrawn or denied (as the case may be), within 30 days, from the date from which the option is withdrawn or from the date of order passed in FORM GST CMP-07, as the case may be.

– Any intimation or application for withdrawal or denial of the option to pay tax under composition scheme in respect of any place of business in any State or Union territory shall be deemed to be an intimation in respect of all other places of business registered on the same PAN.

PENALTY PROVISIONS UNDER COMPOSITION SCHEME

– If officer has reason to believe that composition dealer has wrongly availed benefit of this scheme in addition to any tax payable under the provisions under the provisions of the act, be liable to penalty and the provisions of Section 73 or Section 74 apply for determination of tax & penalty

EXTRA POINTS TO BE CONSIDERED FOR COMPOSITION SCHEME

– 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.

– 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.

– Composition scheme shall be effective only from the beginning of the financial year and cannot be opted in middle of the year, except for new registrations and migration cases. However Composition Scheme may be withdrawn in the middle of the year.

– Composition dealer cannot make exports of goods or services or both because composition dealer cannot make inter-state supplies

Composition Scheme V/s Normal Scheme under GST

Points Composition Scheme Normal Scheme
Return Periodicity Quarterly Return (4 Return+1 Annual) Monthly Return (36 Return+1 Annual)
Compliance Low High
Tax Liability Fixed rate of tax on Supply As per GST rates
Working Capital Requirement Low High as most of his working capital will be blocked as Input tax credit
Area of Business Limited as Composition Dealer not allow to make inter-state supply Wide
Input Tax Credit No Yes

 SYNOPSIS OF FORMS RELATED TO COMPOSITION LEVY

Sr. No. FORM Particulars
1. FORM GST CMP-1

(Migration)

Intimation for composition levy by a person; who has been granted provisional registration and who opts to pay tax under section 10 i.e. Composition Levy (prior to appointed day but not later than 30 days from the appointed day)
2. FORM GST CMP-02

(Opt for composition scheme)

Intimation for composition levy by a registered person who opts to pay tax under section 10 i.e. Composition Levy

(prior to the commencement of the financial year for which option to pay tax under this scheme exercise)

3. FORM GST CMP-03

(Migration)

Details of stock including the inward supply of goods received from unregistered persons to be provided by a person who has been granted provisional registration adopts pay tax under composition levy (Migration)
4. FORM GST CMP-04 Application for withdrawal from the composition scheme when ceases to satisfy any of the condition of the composition scheme.

Application for withdrawal from the composition scheme who intends to withdraw from the composition scheme

5. FORM GST CMP-05 Show Cause Notice for denying the option to pay tax under Composition levy by the officer (Reason to believe that not eligible to pay tax u/s 10 or contravened the provision of the Act or these rules)
6. FORM GST CMP-06 Reply to Show Cause Notice
7. FORM GST CMP-07 Order for accepting or denying the option to pay tax under Composition levy upon receipt of reply to SCN

Feedback/ Suggestions are invited at gstcornor@gmail.com or whats app at 8989077616.

Anyone can also easily join our leading what’s group by filling our form @ bit.do/gstcornor.

Disclaimer:

The views expressed in this article are of the CA. Kuldeep Pokharna & CA. Nayan Jain, Nyn (Associate member of Team GST Cornor). The information cited in this article has been drawn from various provision of The CGST Act, Rules, ICAI publications and other various sources. While every effort has been made to keep, the information cited in this article error free, team GST Cornor does not take the responsibility for any typographical or clerical error which may have crept in while compiling the information provided in this article.

This article includes general information about legal issues and developments in the proposed law of GST in India. Such materials are for informational purposes only and may not reflect the most current legal developments. These informational materials are not intended, and must not be taken, as legal advice on any particular set of facts or circumstances. We disclaim all liability in respect to actions taken or not taken based on any or all the contents of this article to the fullest extent permitted by law. Do not act or refrain from acting upon this information without seeking professional legal counsel.

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17 responses to “Get Simplified Composition Scheme under GST”

  1. Pn says:

    Hi i am into Jewellery manufacturing by means of job work only (where i take job work order from b2b customers & give it on job work to artisans staying in ny premises), can i get registered under composition scheme? Also what is the rate of total composition tax in this case?

  2. seema hiwale says:

    hello! please explain about stock on 30.6.17, (after paying vat for goods sold till 30.6.17). do i just carry forward the stock? do i have to pay any further tax on it?eg.i will pay vat rs 20000. i have closing stock rs 80000. (i was registered dealer under vat. intra state dealings only.not online. <75 lakhs.composition scheme under GST.) thank you very much.

  3. Surinder Singh says:

    Sir, If a dealer exclusively deals in tax free goods before levy of GST & choose for composition scheme under GST regime then what is status of taxation of C.S whether he required to pay tax @ GST Slabs or @1%

  4. MAHESH says:

    WHETHER TAX of 1 % IS PAYABLE ON EXEMPTED GOODS IF A DEALER OPTS FOR COMPOSITION SCHEME ?

  5. bijay Kumar says:

    Pl clarify that in case of Textile(cloth) Business, cloth was exempted goods in earlier law.(i.e. VAT) now taxable under GST. required to submitt stock details held as on 30/06/2017. if yes, in which format. if obtaining new registration under GST (Composition Scheme).

    • Surinder Singh says:

      Sir,
      if any person deals exclusively in tax free goods before 01/07/2017 ( date of levy of GST), & want registration under Composition scheme of GST Act,2017 then what is status of closing stock, whether he required to pay tax @ GST Rate applicable or @1% .

  6. Avinash says:

    What is the value of supply for a secondhand goods dealer as per rules if he buys goods from registered dealer for 10 lakhs and sells for 12 lakhs. Assuming GST tax is 1% on composition gst what will be his tax liability? I think there is a different method for computation of value of supply for secondhand goods traders. I wanted to know if the rule can be applied even when the trader opts for composition gst scheme.

  7. jagmohan singh says:

    Whether receipent of goods from dealer under compositie scheme can claim GST (Input) or not?

  8. SANJAY GUPTA says:

    what will be treatment of value of supply from April to June 2017, for calculating threshold limit of 20 lacs and Rs. 75 lacs for composition scheme

  9. SESHADRIVASA MANAM says:

    Sir, presently TURNOVER TAX DEALERS IN ANDHRA PRADESH choose the Composition scheme? If they choose composition scheme, they are eligible to purchase from out of state against payment of applicable tax to that state supplier OR manufacturer? Please clarify.

  10. Tsering says:

    Hi,
    What are the GST obligations of a petty retailer who requires to get his wares from different states. For example a petty retailer whose total annual turnover is about 12 lac but all the items that he deals with are sourced from cities/small towns of a couple different states.
    How can he now transport his wares to his shop from different states as he is not required to be
    GST registered.

    I understand the inter state seller of goods has to be registered even he is within the threshold limit of 20 lac. But GST laws are not clear but the inter states buyer of goods especially when the buyer is a petty retailer.

  11. Prasanna says:

    Hi, Aggregate turnover includes​ all taxable supplies, exempt, exports, interstate supplies of having same PAN should not exceeded 50 lakhs, then they can sell in the state and export. If Rs50 lakhs crossed then composition scheme is not applicable.

  12. GST Cornor says:

    Hello Jain Sir,

    A dealer exports goods out of India (interstate outwards supplies) is not eligible to opt for composition scheme. If you have any further question or query pls revert us on gstcornor@gmail.com

  13. Jai Maurya says:

    Thank you so much for publishing such useful article GST Corner.

  14. M.L.JAIN says:

    NICE
    PL CLARIFY WHETHER A DEALER CAN SELL IN THE STATE UNDER COMPOSITION & EXPORT OUT SIDE INDIA UNDER GST. AT PRESENT IN RAJASTHAN ALL THE GEMS & JEWELLERY DEALER ARE DOING BUSINESS LIKE THIS.

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