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Composition scheme under the GSTThe purpose of composition scheme is to ensure minimum compliance is put on small business entities. The various features of composition scheme as contained in section 10 and draft rules are as follows

Eligibility:

A registered person, whose aggregate turnover in the preceding financial year did not exceed fifty lakh rupees, may opt to pay, in lieu of the tax payable by him, an amount calculated at such rate as may be prescribed. The Government may, by notification, increase the said limit of fifty lakh Rupees to such higher amount, not exceeding one crore rupees, as may be recommended by the Council.

Maximum rate of tax:

The maximum rate of tax is one per cent (1%) of the turnover in State or turnover in Union territory in case of manufacturers, two and a half per cent(2.5%) in case of supply of food or non-alcoholic drink and half per cent (1/2%) in other cases.

Non eligible taxable persons:

The registered person shall be eligible to opt for composition if

  1. He is not engaged in the supply of services other than 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.
  2. He is not engaged in making any supply of goods which are not leviable to tax under this Act.
  3. He is not engaged in making any inter-State outward supplies of goods.
  4. 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.
  5. He is not a manufacturer of such goods as may be notified by the Government on the recommendations of the Council.

Where more than one registered persons are having the same Permanent Account Number the registered person shall not be eligible to opt for the composition- scheme unless all such registered persons opt to pay tax under that sub-section.

Lapse of scheme:

The option availed of by a registered person to pay tax under composition scheme shall lapse with effect from the day on which his aggregate turnover during a financial year exceeds the limit specified i.e. Rs 50 lakhs. He will be liable to pay tax under the normal provisions and further he will not be eligible to opt for the composition scheme in the following financial year also because composition scheme can be opted for on the basis of aggregate turnover of the preceding financial year.

Illustration
AB Trading has a turnover of Rs 45 lakhs in financial year 2017-18. It can opt for composition scheme in financial year 2018-19. Now suppose its total crosses 50 lakhs on 14 February 2019. From that day onwards it will have to collect and pay tax under the normal provisions. Further it will not be eligible for the composition scheme in financial year 2019-20. Now suppose if the turnover of AB Trading is Rs 48 lakhs in financial year 2019-20 than it shall again be eligible to opt for composition scheme in financial year 2020-21.

No tax to be collected from customer:

Normally a taxable person is entitled to collect tax from the recipient of taxable supply since it is an indirect tax. But under the composition scheme taxable person shall not collect any tax from the recipient on supplies made by him nor shall he be entitled to any credit of input tax.

Conditions and restrictions for composition levy:

The person exercising the option to pay tax under section 10 shall comply with all of the following conditions to the extent applicable:

  1. He is neither a casual taxable person nor a non-resident taxable person.
  2. 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 in case of provisional registration under transitional provisions and opting to pay tax under composition scheme.
  3. The goods held in stock by him have not been purchased from an unregistered person and where purchased, he pays the tax under sub-section (4) of section 9 i.e. tax on reverse charge basis on purchases made.
  4. He shall pay tax under sub-section (3) or sub-section (4) of section 9 on inward supply of goods or services or both received from un-registered persons i.e. tax on reverse charge basis.
  5. He was not engaged in the manufacture of goods as notified under clause (e) of sub-section (2) of section 10, during the preceding financial year.
  6. 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.
  7. 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.

Procedure of opting for composition scheme:

As per rule 1 of draft Composition Rules any person who has been granted registration on a provisional basis and who opts to pay tax under section 10, shall electronically file an intimation in FORM GST CMP-01, duly signed, on the Common Portal, either directly or through a Facilitation Centre notified by the Commissioner, prior to the appointed day, but not later than thirty days after the said day, or such further period as may be extended by the Commissioner in this behalf.

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.

Any person who applies for registration under normal provisions may give an option to pay tax under section 10 in Part B of FORM GST REG-01, which shall be considered as an intimation to pay tax under the said section.

Any registered person who opts to pay tax under section 10 shall electronically file an intimation in FORM GST CMP-02, duly signed, on the Common Portal, either directly or through a Facilitation Centre notified by the Commissioner prior to the commencement of the financial year for which the option to pay tax under the aforesaid section is exercised and shall furnish the statement in FORM GST ITC-3 within sixty days from the commencement of the relevant financial year.

Any person who files an intimation to pay tax under section 10 shall furnish the details of stock, including the inward supply of goods received from unregistered persons, held by him on the day preceding the date from which he opts to pay tax under the said section, electronically, in FORM GST CMP-03, on the Common Portal, either directly or through a Facilitation Centre notified by the Commissioner, within sixty days of the date from which the option for composition levy is exercised or within such further period as may be extended by the Commissioner in this behalf.

The option to pay tax under section 10 shall be effective from the beginning of the financial year in normal cases and the appointed date in case of provisional registration under transitional provisions.

The intimation in case of normal registration shall be considered only after grant of registration to the applicant and his option to pay tax under section 10 shall be effective from the date fixed as per the registration rules.

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, duly signed, electronically on the Common Portal.

Liability to pay tax under normal provisions:

The person paying tax under composition scheme shall be liable to pay tax under sub-section (1) of section 9 from the day he ceases to satisfy any of the conditions mentioned in section 10 or these rules and shall issue tax invoice for every taxable supply made thereafter and he shall also file an intimation for withdrawal from the scheme in FORM GST CMP-04 within seven days of occurrence of such event.

Penal Provisions:

As per section 10(5) if the proper officer has reasons to believe that a taxable person has paid tax under composition scheme despite not being eligible, such person shall, in addition to 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.

Where the proper officer has reasons to believe that the registered person was not eligible to pay tax under section 10 or has contravened the provisions of the Act or rules he may issue a notice to such person in FORM GST CMP-05 to show cause within fifteen days of the receipt of such notice as to why option to pay tax under section 10 should not be denied.

Upon receipt of reply to the show cause notice from the registered person in FORM GST CMP-06, the proper officer shall issue an order in FORM GST CMP-07 within thirty days of receipt of such reply, either accepting the reply, or denying the option to pay tax under section 10 from the date of option or from the date of the event concerning such contravention, as the case may be.

Details of inputs to be filed:

Every person who has furnished an intimation on crossing threshold limit for eligibility under composition scheme or filed an application for withdrawal or a person in respect of whom an order of withdrawal of option has been passed in FORM GST CMP-07 is required to electronically furnish at the Common Portal, either directly or through a Facilitation Centre notified by the Commissioner, 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, within 30 days, from the date from which the option is withdrawn or from the date of order passed in FORM GST CMP-07.

Any intimation for withdrawal or denial of the option to pay tax under the 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.

The purpose of this article is to create awareness about the soon to be implemented Goods and Service Tax in India.

ca rishabhkumarThe author is a fellow member of the Institute of Chartered Accountants of India and also a qualified Company Secretary. The author has also done DISA(ICAI), certificate on IFRS (ICAI), Certificate on Forex and Treasury Management (ICAI), Certificate on Forensic Accounting and Fraud Prevention (ICAI). The author practices as a Chartered Accountant under the name and style of Rishabh Kumar Barmecha and Associates and is an expert in auditing, financial investigation, direct and indirect taxation. The author can be reached at rishabhkumarbarmecha@gmail.com or 91 9007909221 or Twitter @CARKBarmecha.
CA Rishabh Kumar Barmecha

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3 thoughts on “Composition scheme under the GST Law

  1. Renu Junj says:

    Sir
    One Hotel has restaurant + boarding facility.
    Restaurant income is below 50 lakh & boarding income is also below 50 lakh.
    Then what will be the GST rate for both segments

  2. Mrunal Shah says:

    After Migration to GST. How to register in Composition Scheme?

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