Levy under GST Composition SchemeGST regime has borrowed various concepts from erstwhile Service Tax. Composition Scheme is one such concept. Keeping in view the small traders this concept is reintroduced in GST as well. Composition Scheme allows small traders to be a part of the tax net. The compliances under Composition Levy Scheme in GST are quite simple. Today in this article, we will discuss Composition Levy Scheme in GST.

Table of Contents

What is Composition Levy Scheme in GST?

Under Composition Levy Scheme in GST, a registered taxable person, whose aggregate annual turnover does not exceed Rs. 1 crores (Rs.75 lakhs in case of specified states) in the previous financial year can opt for this scheme. A person registered under this scheme has to fulfil following requirements-

  • Pay tax at a fixed percentage of his annual turnover.**
  • Pay the tax quarterly. The return filing also needs to be done quarterly. Return should be filled in form GSTR-04.
  • The person cannot issue a taxable invoice under GST. Also he cannot collect GST from his customers or inputs on his purchases.

** For the purpose of annual turnover the amount will be totaled for all the entities that have same   PAN throughout India. The sum of all outward supplies i.e. taxable, exempt, exports of goods and services, Interstate supplies will be taken. However, tax portion and transactions where tax is paid under RCM Mechanism will be excluded.

Is it compulsory to get registered under GST to avail Composition Levy Scheme?

As per GST law, any person who wants to opt for Composition Levy Scheme should be registered under GST. The person already registered needs to intimate that from which day he wishes to opt for Composition Levy Scheme. He needs to fulfil following formalities-

  • The person needs to file the intimation in FORM CMP-01 on the common portal (www.gst.gov.in)
  • The person also needs to file CMP-03. In this form he should inform that how much stock he is holding on the transition date that is purchased from an unregistered dealer.
  • Any person who is taking a fresh registration to opt for Composition Levy Scheme, should file the fill the necessary information under PART B of FORM GST REG-01.
  • Any person who is already registered under GST has to file form CMP-02 to inform his choice of opting Composition Scheme to the government.

 It may be noted that if a person has got different registrations in different states but has same PAN, then he has to opt for Composition Scheme for all those entities. Also if one entity is found ineligible than it will be applicable on all the entities.

People not Eligible for Composition Levy Scheme in GST

The following people are not eligible for Composition Levy Scheme under GST-

Category of Person Description
  • Casual Taxable Person
Person who does not have a fixed place of business in a particular state. But he undertakes transactions in that place occasionally.
  • Non- Resident Taxable Person
Any person who occasionally undertakes supplies but does not have fixed place of transaction in India
  • Supplier of service
Any service supplier except restaurant service
  • Person engaged in supply of goods
– Where such goods are non-taxable under GST   law e.g. petroleum, Natural Gas, Alcohol etc.

-Also where the person is having inter-state dealing of goods he cannot opt for composition scheme.

  • E-Commerce Operator
An E-commerce operator who is required to collect tax at source under CGST Act.
  • Person manufacturing specific goods
Any person manufacturing specific goods like- ice cream, pan masala, tobacco and its substitutes.
  • Based on goods lying in stock on option date
The goods held in stock on the appointed date must not be on account of interstate trade or commerce or import or must not be received from his branch or agent or principal outside the state where the option is exercised
  • Liable under RCM
A person is still liable to pay tax under RCM on inward supplies.

Rates of Tax under Composition Levy Scheme

The rates of taxes under Composition Levy Scheme are-

Category of Registered Person Rate of Tax
  • Manufacturer of goods, other than mentioned in Pt.6 above
1% (0.5% CGST+0.5% SGST) on the basis of  turnover in a state or UT
  • Supplier of restaurant services
5% (2.5% CGST+2.5% SGST) on the basis of turnover in a state or UT.
  • Any other eligible persons (e.g. Traders)
1% (0.5% CGST+0.5% SGST) on the basis of  turnover in a state or UT
  • Supplier of services other than restaurant services
Turnover limit –Rs.50 lakhs in this case. Rate of tax is-

6% (3% CGST+3% SGST) of the turnover of supplies of goods and services in the state or UT >.

Conditions to be fulfilled by dealer registered under Composition Scheme

A person opting for levy of GST under Composition Levy Scheme has to fulfil following conditions-

  • Such person is not allowed to issue taxable invoice. The words “Composition taxable person, not eligible to collect tax on supplies” should be written on top of every bill.
  • He cannot claim input tax credit on purchases.
  • The words “composition taxable person” should be there on every notice board or sign board displayed at the prominent place at his every place of business.
  • The person should not fall under any condition above that makes him ineligible to avail the scheme.
  • If the person becomes ineligible, than he should withdraw from the scheme. Withdrawal from the scheme should be intimated to GST Department under prescribed form.
  • The person need not to fill up the form and give it every year. As long as he is eligible to avail the scheme he can continue to do so.

Consequences for availing the scheme wrongly

As per law only people whose turnover falls in the specified category are allowed to avail the Composition Levy Scheme under GST. In addition to that person should not be disqualified under any of the conditions specified above. 

However, if a person avails the benefit of scheme wrongly then, he will be issued a show cause notice from a competent authority. The show cause notice will be issued in form CMP-05. The notice should be replied in 15 days. The officer has to issue order within 30 days from the date of reply under CMP-07.

Thereafter, if a person has received denial order than he has to furnish details of all the goods held in stock on the common portal within 30 days of the denial order.

The tax and penalty will be levied on the defaulter after following all the necessary procedures.

Withdrawal from Composition Levy Scheme in GST

As we know that a person registered under Composition Levy Scheme is not allowed to avail input on purchases and feels at loss due to same. Also there may be case where he is rendered ineligible under any condition. In both the cases person needs to withdraw from the scheme.

  • The person has to file an intimation in form GST CMP-04 on the GST portal. In case of ineligibility it should be done within 7 days from the date of ineligibility.
  • Details of stock held on the date of opting withdrawal or ineligibility as the case may be should be filed under form GST ITC-01 on the portal. It should be filed within 30 days of withdrawal.

Following these submissions, the taxable person will have to pay as a normal tax payer. Also he will be allowed to avail tax credit for the goods held in stock on the date of withdrawal.

Conclusion

Just like every other thing composition scheme also comes with its shares of pros and cons. It gives a relaxation from following various procedures under GST as we need to file only quarterly return. The tax computation is also relatively simple as its flat rate on turnover. However, it also renders the person ineligible to claim inputs and puts him out of the tax chain. The Composition Levy Scheme under GST is an option given to small traders and manufacturers so as to save time and money required for compliances. Obviously the choice depends on the nature and quantum of business.

CategoryGST

CA Vimal Kumar Sharma has expertise is in the field of Accounting, Budgeting, Management Reporting, Statutory Reporting, Regulatory Compliance, Working Capital Management, Taxation, Statutory and Tax Audit and posses experience of almost 5 years.

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