Know About the GST Composition Scheme

Composition Scheme is a simple and easy scheme under GST for taxpayers. Small taxpayers can get rid of tedious GST formalities and pay GST at a fixed rate of turnover. This scheme can be opted for by any taxpayer whose turnover is less than Rs. 1.5 crore.  It is optional, and the eligible person opting to pay tax under this scheme can pay tax at a prescribed percentage of their turnover every quarter, instead of paying income tax at the standard rate.
The supplier of service must have a turnover of less than Rs. 50 lakh in the previous financial year. The supplier should not be supplying non-taxable goods. The supplier should not be engaged in making interstate supplies.
The Composition levy scheme is a hassle-free compliance scheme for small taxpayers. It is a voluntary and optional scheme.

Benefits of the composition scheme

• Easy compliance as no elaborate accounts and records to be maintained
• Simple Quarterly Return
• Quarterly payment of tax

Provisions related to the composition levy

Provisions related to composition levy have been provided under section 10 of the Central GST Act, 2017.
Under this scheme, a registered taxable person, whose aggregate turnover does not exceed Rs. 1.5 crores. However, service providers can opt for a similar scheme for composition scheme dealers, where the aggregate turnover limit is Rs. 50 lakhs.
A taxpayer registered under the composition levy scheme has to pay an amount equal to a certain fixed percentage of their annual turnover as tax to the government.
This tax has to be paid on a quarterly basis.
He has to file a simple quarterly return in FORM GSTR-04.
However, upon opting for this scheme, he cannot issue a taxable invoice under the GST law and can neither collect GST from his customers nor claim Input Tax credit on his purchases

Method to calculate Aggregate Turnover

Aggregate turnover is computed on an all-India basis for a person having the same Permanent Account Number (PAN).
It is the sum of the value of all outward supplies falling in the following four categories:

• Taxable supplies
• Exempt supplies
• Exports of goods or services, or both
• Inter-state supplies,

but excludes

• The value of inward supplies on which tax is payable by a person on a reverse charge basis &
• Taxes, including cess, are paid under the GST law.
• A person supplying any exempt services, including services by way of extending deposits, loans or advances, so far as the consideration is represented by way of interest or discount, shall not be ineligible for the composition scheme.
• In computing his aggregate turnover in order to determine his eligibility for the composition scheme, the value of the supply of the exempt services, including services by way of extending deposits, loans, or advances, shall not be taken into account.

Registration and intimation under the scheme

• Registration under the GST law is compulsory for opting for the Composition scheme.
• A person who is registered under existing laws and has obtained a provisional registration under GST has to file an electronic intimation in the FORM GST CMP-01
• A person who is not registered under existing law but applies for fresh registration under Rule 8 of the CGST Rules, 2017, may opt for the scheme by providing necessary information under part B of FORM GST REG-01.
• Any registered person who wants to opt for composition levy hasto file an electronic intimation in the FORM GST CMP-02 prior to the commencement of financial year for which the option to pay tax under composition levy is exercised and also has to a furnish a statement in FORM GST ITC-03 in accordance with the sub rule (4) of Rule 44 of CGST Rules, 2017, within 90 days from the commencement of the relevant financial year.
• A person having a single PAN and registered in more than one State under GST can opt for the scheme, provided he meets all the conditions of the scheme, only if all such registered persons opt for the Composition scheme.
• A registered person cannot choose to opt for the Composition scheme in one state and not in another state.

Further, an intimation for withdrawal from the scheme, or denial of the scheme with respect to any one registered person under the same PAN, will be applicable for all such registered persons.

Effective Date for the composition levy

Effective date for the taxpayers who are already registered under the existing laws and obtained provisional registration under GST law and have intimated about opting for the scheme either before the appointed day (01/07/2017) or within 30 days (or as extended) of the appointed day, shall be the appointed date.
The effective date for a registered taxpayer who intimates about opting for the scheme under FORM GST CMP-02 shall be the beginning of the financial year
The effective date for a person who applies for fresh registration under FORM GST REG-01 shall be the effective date of registration

Persons who are not eligible for the scheme

The list of taxable persons who are not eligible for the scheme is as follows:

1. A casual taxable person, i.e., a person who has no fixed place of business.
2. A non-resident Taxable person.

• A supplier of services except a person engaged in the supply of restaurant services.

1. A person engaged in providing an interstate supply of goods.
2. A person engaged in the supply of non-taxable goods
3. A person involved in the supply of goods through an Electronic Commerce Operator (ECO) who is required to collect Tax at source under section 52 of the CGST Act.

• The goods held in stock by him on the appointed day have not been purchased in the course of inter-State trade or commerce, or imported from a place outside India, or received from his branch situated outside the State, or from his agent or principal outside the State, where registration under the Composition Scheme has not been taken
• The goods held in stock by him have not been purchased from an unregistered supplier, and where purchased, he pays the tax under the reverse charge mechanism.

1. A person engaged in the manufacturing of goods notified under sec 10 (2) (e) of the CGST Act either in the year 2016-17 or later.

Rate of Tax under the scheme

There are three rates prescribed for three different categories of suppliers.

• An eligible Manufacturer has to pay 1 (0.5% CGST and 0.5% SGST/ UTGST) of turnover in a state or Union Territory, as the case may be.
• An eligible person engaged in making supplies of restaurant Service has to pay 5% (2.5% CGST and 2.5% SGST/UTGST) of turnover in a state or Union Territory, as the case may be.
• An eligible person engaged in any other supply, ie, other service providers or as a mixed supply, has to pay 1% (0.5% CGST and 0.5% SGST/UTGST) of turnover

Conditions & Restrictions under the scheme

A person opting for the scheme has to adhere to the following conditions

• Issue a bill of supply in the prescribed manner
• Pay all taxes on purchases, including taxes to be paid on a reverse charge basis.
• Should not claim input tax credit for purchases
• Mention the words “composition taxable person” on every notice board or signboard displayed at a prominent place at his every place of business.
• Where ever a person, registered under any of the existing laws, and who has been given provisional registration, gives an intimation for the composition scheme, he shall not be allowed the composition scheme in case the goods held in stock by him on the appointed day have been purchased in the course of inter-State trade or commerce or imported from a place outside India or received from his branch situated outside the State or from his agent or principal outside the State.

Withdraw from the scheme

A person opting for the composition levy scheme can continue to pay tax under the said scheme as long as he satisfies the eligibility criteria and conditions related to the scheme and do not require to file a fresh application every year.
But, such a person shall be liable to pay tax under sub-section (1) of section 9 of the CGST Act, 2017 from the day he ceases to satisfy any of the conditions and shall issue tax invoice for every taxable supply made thereafter. He shall also file an intimation for withdrawal from the scheme.
Voluntary withdrawal:
The  taxpayer can withdraw voluntarily from the scheme in the following manner: –

1. a)  Shall file a duly signed application in Form GST CMP – 04
2. b) Shall furnish electronically a statement in Form GST ITC – 01 having details of the stock of inputs as raw material, in semi-finished or finished goods held by the taxpayer in stocks on the date of opting out of the composition scheme, within a period of 30 days of opting out.

Note: As per Rule 40 of CGST Rules 2017, the declaration in Form GST ITC-01 needs to be certified by a Chartered Accountant or Cost Accountant where input tax credit shall be more than Rs. 2.00 Lacs.

Amendment

(1) The due date to file GSTR-4 for FY 2020-21 was extended from 30th April 2021 to 31st May 2021.
(2) The Form CMP-08, which was due by 18th April 2021 for the January-March 2021 period, has been granted a relaxation in the interest charges. No interest for filing on or before 8th May, interest reduced to 9% between 9th May and 23rd May, but charged at 18% thereafter.
(3) The time limit to file ITC-03 by newly opted composition taxable persons for FY 2021-22 is extended up to 31st May 2021.