Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

Composition Scheme under GST Law

Composition scheme under the GST Law is for small taxpayers. The objective of composition scheme is to bring simplicity and give relief to small taxpayers so that they need not be burdened with the compliance provisions under the (1ST law. Moreover, it is an optional scheme and the eligible person can opt to pay a fixed percentage of turnover as fees every quarter instead of paying tax at normal rate.

Composition Scheme under GST Law
Composition Scheme under GST Law

1.  Composition levy [Section 10(1) of CGST Act, 2017]

A registered person, whose aggregate turnover in the preceding financial year did not exceed Rs. 2.5 Crore, may opt to pay, in lieu of the normal tax payable by him, an amount calculated at such rate as may be prescribed, but not exceeding,—

(a)        0.5% of the turnover in State or turnover in Union territory in case of a manufacturer (CGST rate),

(b)        2.5% of the turnover in State or turnover in Union Territory in case of persons engaged in making supplies referred to in clause (b) of paragraph 6 of Schedule II, i.e. supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration (CGST rate), and

(c)        0.5% of the turnover of the taxable supplies of goods in State or turnover in Union territory in case of other suppliers (CCST rate),

Notes—

  1. Like CGST rate, there shall be an equivalent rate of SGST / UTGST payable in case of composition levy. As a result, total GST payable shall be double of the above mentioned CGST rates. Thus, the maximum total GST rate shall be 1% or 5% or 1%, as the case may be instead of 0.5% or 2.5% or 0.5%.
  2. However, the aggregate turnover in the preceding financial year shall be Rs 1.5 Crore in the case of an eligible registered person, registered under section 25, in any following States, namely:
See also  Introduction of GST Law [Constitution (101st Amendment) Act, 2016]

(i) Arunachal Pradesh,

(ii) Assam,

(iii) Manipur,

(iv) Meghalaya,

(v) Mizoram

 (vi) Nagaland,

(vii) Sikkim,

(viii) Tripura,

(ix) Himachal Pradesh

(a)  Meaning of “Aggregate Turnover” under GST Composition Scheme

“Aggregate turnover” means the aggregate value of all—

(i) taxable supplies,

(ii) exempt supplies,

(iii) exports of goods or services or both, and

(iv) inter-State supplies

of persons having the same Permanent Account Number computed on all India basis

but excludes

(i) central tax,

(ii) State tax/Union territory tax,

(iii) integrated lax, and

(iv) cess.

Further, it will also exclude the value of inward supplies on which tax is payable by the registered person (i.e. recipient of supply) on reverse charge basis.

(b)  Meaning of “Registered Person” under GST Composition Scheme

“Registered person” means a person who is registered under Section 25 of the CGST Act but does not include a person having a Unique Identity Number.

2.  When is the Registered Person eligible to opt for Composition Scheme under GST Law? [Section 10(2) of CGST Act, 2017]

The person opting for composition levy should first satisfy the following basic conditions:

(i)         He should be a registered person under the GST law

and

(ii)        his aggregate turnover in the preceding financial year should not exceed Rs. 1.5 Crore.

If the above two basic conditions are satisfied, then such registered person shall be eligible to opt under section 10(1) of GST Composition Scheme, if—

(a)          he is not engaged in the supply of services other than supplies, by way of or as part of any service of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), provided such supply or service is for cash, deferred payment or other valuable consideration);

In other words, persons engaged in supply of services shall not be eligible for the composition scheme However, supplier of restaurant service, mandap keeper and outdoor catering service shall be eligible for composition scheme.

(b)          he is not engaged in making any supply of goods which are not leviable to tax under this Act (i.e. alcoholic liquor for human consumption, petroleum crude, high speed diesel, motor spirit, natural gas, and (v) Aviation Turbine Fuel);

(c)           he is not engaged in making any inter-State outward supplies of goods;

(d)          he is not engaged in making any supply of goods through an electronic commerce operator who is required to collect tax at source under section 52; and

(e)          he is not a manufacturer of such goods as may be notified by the Government on the recommendations of the Council.

The Government has notified that the manufacturers of—

— ice-cream and other edible ice, whether or not containing cocoa;

Pan Masala;

— Tobacco and manufactured tobacco substitutes

shall not be eligible to opt for composition scheme.

See also  [Section 143(1)]- Processing of Return of Income

(a)  Who are the Persons not eligible for Composition Scheme under GST Law

The following persons though registered under GST law are not eligible for composition scheme even if their aggregate turnover in the preceding financial year did not exceed Rs. 1 crore:

(i)         Supplier of services. However, supplier of restaurant service, mandap keeper and outdoor catering service shall be eligible for composition scheme.
(ii)        Supplier of goods which are not leviable to tax under this Act. At present the following goods are not leviable to tax under this Act..

(i)                  alcoholic liquor for human consumption

(ii)                petroleum crude

(iii)              high speed diesel

(iv)              motor spirit

(v)                natural gas, and

(vi)              Aviation Turbine Fuel

(iii)       Supplier of inter-State outward supplies of goods.
(iv)       Supplier of goods through an electronic commerce operator.
(v)        Manufacturers of

(a) ice-cream and other edible ice, whether or not containing cocoa;

(b) Pan Masala;

(c) Tobacco and

(d) manufactured tobacco substitutes.

(vi)       a casual taxable person or a non-resident taxable person;
(vii)      supplier who has purchased any goods or services from unregistered supplier unless he has paid GST on such goods or services on reverse charge basis. (This condition is deferred till 30.6.2018);

(b)   All Registered Persons having the same PAN must opt for Composition Levy [Proviso to section 10(2)]

Where more than one registered persons are having the same Permanent Account Number (issued under the Income-tax Act, 1961), the registered person shall not be eligible to opt for the scheme under section 10(1) unless all such registered persons opt to pay tax under that sub-section.

Example

R Ltd. has its head office at Delhi. It has three branches which are located in Punjab, Haryana and Uttar Pradesh. The head office and the branches are registered under the respective Stales. However, they have a common Permanent Account Number. In this ease, if the head office and the branch at Punjab are paying GST under the normal scheme then the other two branches cannot opt for the composition scheme.

3.   Lapse of the option of Composition Scheme [Section 10(3) of CGST Act, 2017]

The option availed of by a registered person under section 10(1), based on the aggregate turnover of the preceding previous year, shall lapse with effect from the day on which his aggregate turnover during a financial year exceeds the limit specified under section 10(l). In other words, the option shall lapse as soon as the aggregate turnover exceeds Rs. I crore.

Example

The aggregate turnover of RG, a registered firm during the financial year 2018-19 is Rs. 1,48,00,000. During the financial year 2019-20, the aggregate turnover for the firm till 18.9.2019 is Rs. 1,48,00,000. On 19.9.2019 it issues three invoices of Rs. 1,00,000, Rs. 75,000 and Rs. 1,10,000 each. It shall be liable to pay GST under normal scheme on all the three invoices as its turnover on 19.9.20 19 exceeds Rs. 1.5 Crore.

See also  [Section 194DA]- TDS from Payment in respect of life Insurance Policy

4.  Person who opts for Composition Scheme shall not collect any GST and shall not be eligible for Input Tax Credit (ITC) [Section 10(4) of CGST Act, 2017]

A taxable person to whom the provisions of section 10(1) apply shall not collect any tax from the recipient on supplies made by him nor shall he be entitled to any credit of input tax.

In other words, the person opts for the composition scheme shall not:

(i)         collect any tax from the recipient on supplies made by him; nor

(ii)        shall he be entitled to any credit of input tax

5.   Penalty in case of wrongful availment of GST Composition Scheme [Section 10(5) of CGST Act. 2017]

If the proper officer has reasons to believe that a taxable person has paid tax under section 10(1) despite not being eligible, such person shall, in addition o any tax that may be payable by him under any other provisions of this Act, be liable to a penalty and the provisions of section 73 or section 74 shall, mutatis mutandis, apply for determination of tax and penalty.

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