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Composition Scheme

Unregistered Taxpayer and Composition Scheme – GST : Section 10 of the CGST Act 2017 provides option to any registered taxable person having turnover up to Rs 75 lacs per annum to pay tax at lower rates subject to the condition that he should not collect the tax from his customer and should not avail ITC on his input goods and services. This means that he should pay tax out of his profit or charge out to customer by way of increasing price of the goods or services.

The Composition Scheme introduced mainly to attract the small business players to register themselves into the tax net. However, the section 9 of the Act required the taxpayers purchasing goods or services from unregistered suppliers to pay the GST on reverses charge basis at applicable rats and allowed ITC on the same. Thus purchase from unregistered person became more advantageous than that from composition dealer.

Now vide notification no 46/2017– Central Goods and Services Tax dated 13/10/2017 the GOI have increased the turnover limits for composition levy scheme Rs 1 crores to popularize the composition levy scheme. However at the same time the GOI has exempted purchases from unregistered suppliers from the payment of reverse charge GST as a whole making such purchases more attractive from tax point of view compared to composition levy option.

In the news paper reports it has been reported that the GST Council in it meeting held on 6/10/2017 had recommended that, the small tax payers whose annual turnover does not exceed Rs.1.5 crores may be allowed to file quarterly returns in the place of monthly returns.

Accordingly the GOI has issued notification no 40/2017 Central Goods and Service Tax dated 13/10/2017 as seen from the notification, taxable persons whose annual turnover during the preceding year did not exceed Rs.1.5 crores who have not opted for Composition scheme under section 10 of the Act would be classified as persons liable to pay tax at the time specified in section 12(a) of the Act, and are liable to pay tax and file returns as per the provisions contained in chapter IX of the Act. Chapter IX of the Act does not differentiate between the small tax payers with less than 1.5 crores turnover per annum and the bigger ones. Thus the intention of this notification is not very clear. There appears to be some discrepancy in the drafting of this notification. More clarification on Notification no. 40/2017 dt: 13-10-2017 is required.

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