Under the Goods and Services Tax (GST) regime in India, the composition scheme is a simplified tax scheme available to small taxpayers. The scheme is optional and is designed to reduce the compliance burden for small businesses by allowing them to pay tax at a fixed rate of turnover, instead of the regular GST rate.
Eligibility Criteria for the GST Composition Scheme:
1. The taxpayer must be registered under GST
2. The taxpayer must have a turnover of less than INR 1.5 crore (for goods) or INR 50 lakhs (for services)
3. The taxpayer cannot engage in inter-state supplies of goods and services
4. The taxpayer cannot supply goods through e-commerce platforms
5. The taxpayer cannot supply exempted goods and services.
Benefits of the Composition Scheme:
1. Reduced compliance burden as the taxpayer needs to file quarterly returns instead of monthly returns.
2. Lower tax liability as the taxpayer needs to pay tax at a lower rate.
3. No requirement of maintaining detailed records of inward and outward supplies.
Rate of Tax under the Composition Scheme:
The rate of tax applicable under the composition scheme depends on the type of business:
1. Manufacturers, traders, and restaurants (not serving alcohol) need to pay tax at a rate of 1% of turnover.
2. Service providers and restaurants (serving alcohol) need to pay tax at a rate of 6% of turnover.
However, it is important to note that taxpayers registered under the composition scheme are not eligible to claim input tax credit. Therefore, they cannot reduce their tax liability by claiming credit for taxes paid on their inputs.
Who are the persons not eligible for composition scheme?
The following persons are not eligible for the GST composition scheme:
1. Persons engaged in making any supply of goods or services which are not leviable to tax under the GST Act.
2. Persons engaged in making any inter-state outward supply of goods or services.
3. Casual taxable persons or non-resident taxable persons.
4. Persons engaged in making any supply of goods or services through an electronic commerce operator who is required to collect tax at source under section 52 of the CGST Act.
5. Persons engaged in making any supply of goods or services which are exempt under the GST Act.
6. Persons engaged in making any supply of goods or services through an input service distributor.
7. Manufacturers of certain notified goods such as ice cream, pan masala, tobacco, and aerated drinks.
8. Persons engaged in supply of services, other than restaurant-related services.
In addition to the above, a registered person who has purchased any goods or services from an unregistered supplier, unless he has paid GST under reverse charge, is also not eligible for the composition scheme for a period of one year from the date of such purchase.
It is important to note that a person who is eligible for the composition scheme is not required to opt for it. The decision to opt for the GST composition scheme is voluntary and can be taken by the person based on his business needs and requirements.
A taxable person availing composition scheme during a financial year crosses the turnover of Rs.1.5 Cr. /50 lakhs during the course of the year i.e. say he crosses the turnover of Rs.1.50 Cr. /50 lakhs in December2022? Will that taxable person be allowed to pay tax under composition scheme for the remainder of the year i.e. till 31st March2023?
If a person availing the composition scheme crosses the turnover limit of Rs.1.5 crore (for goods) or Rs.50 lakhs (for services) during the financial year, he will not be allowed to pay tax under the GST composition scheme for the remainder of the year. In this case, the person will have to register as a regular taxpayer under GST and start paying tax at the regular GST rates from the month in which the turnover crosses the threshold limit.
In the scenario mentioned in the question, if a person availing the composition scheme crosses the turnover limit of Rs.75 lakhs (for services) in December, he will have to register as a regular taxpayer and start paying tax at the regular GST rates from January onwards. He will have to file the regular GST returns and comply with all the provisions of the GST law applicable to regular taxpayers for the remaining period of the financial year, i.e., till 31st March. The person will not be allowed to pay tax under the composition scheme for the remainder of the financial year.
What is the form in which an intimation for payment of tax under composition scheme needs to be made by the taxable person?
Under the composition scheme, the taxable person needs to make an intimation for payment of tax in Form CMP-02. The Form CMP-02 is required to be filed electronically on the GST Common Portal, either directly or through a Facilitation Centre notified by the Commissioner.
The intimation in Form CMP-02 is required to be filed at the beginning of every financial year before the commencement of the relevant year or before the date of opting for composition scheme. In case of a new registration, the intimation is required to be filed at the time of registration.
The Form CMP-02 requires the taxable person to provide details such as the GSTIN, legal name of the registered person, trade name (if any), address of the principal place of business, details of additional place of business (if any), and details of goods or services supplied. The taxable person is also required to declare that he/she satisfies all the conditions specified for availing the composition scheme.
Once the intimation is filed in Form CMP-02, the composition scheme shall stand valid till the time it is either withdrawn or cancelled.
What forms or returns need to be filed by a taxable composition dealer?
A taxable composition dealer is required to file the following forms or returns:
1. FORM CMP-08: A taxable person registered under the composition scheme is required to file Form CMP-08 on a quarterly basis. The due date for filing CMP-08 is 18th of the month following the end of the quarter. This form is used to declare the details of the outward supplies made during the quarter, tax payable and tax paid.
2. ANNUAL RETURN: A taxable person registered under the composition scheme is required to file an annual return in Form GSTR-9A. The due date for filing GSTR-9A is December 31st of the subsequent financial year. This form is used to declare the summary of all the quarterly returns filed during the financial year.
3. GST REG-01: If a composition dealer wants to opt-out of the composition scheme or if he/she is no longer eligible to be registered under the scheme, then he/she is required to file an application in Form GST REG-01 for withdrawal from the composition scheme.
It is important to note that a composition dealer is not required to file regular monthly returns such as GSTR-3B, GSTR-1, and GSTR-2A. However, he/she is still required to maintain all the records related to inward and outward supplies, tax payments, and other transactions, and produce them as and when required by the tax authorities.
How will the aggregate turnover be computed for the purpose of GST composition scheme?
For the purpose of GST composition scheme, the aggregate turnover of a taxable person shall be computed on the basis of his turnover in the preceding financial year. The term “aggregate turnover” means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable on reverse charge basis), exempt supplies, exports of goods or services, and inter-state supplies of persons having the same PAN.
The following items shall be excluded while calculating the aggregate turnover for the purpose of the composition scheme:
1. Value of inward supplies on which tax is payable on reverse charge basis.
2. Value of supplies made by a person registered under GST who is liable to pay tax under reverse charge.
3. Value of supplies made by a person through an e-commerce operator who is required to collect tax at source under section 52 of the CGST Act.
4. Value of supplies made by a person who is registered under GST as an input service distributor.
It is important to note that the aggregate turnover of a taxable person is considered only for the purpose of determining his eligibility for the composition scheme. Once the person opts for the composition scheme, his taxable turnover shall be calculated based on the turnover in the current financial year and he will be required to pay tax at a specified percentage on the turnover.
What are the other conditions and restrictions subject to which a person is allowed to avail of composition scheme?
In addition to the eligibility criteria, there are certain other conditions and restrictions that a person must comply with in order to avail of the composition scheme under GST. These conditions and restrictions are as follows:
1. Taxable person is not allowed to collect tax from the customer: A person opting for the composition scheme is not allowed to collect any tax from the customers. This means that he/she cannot charge GST separately on the invoice.
2. Taxable person is not allowed to claim input tax credit: A person availing the composition scheme is not allowed to claim any input tax credit on the purchases made for the purpose of his/her business.
3. Mentioning “composition taxable person” on every notice or signboard: A person availing the composition scheme is required to mention the words “composition taxable person” on every notice or signboard displayed at a prominent place at his/her place of business.
4. Payment of tax at a fixed rate: A person availing the composition scheme is required to pay tax at a fixed rate on the turnover of his/her business. The rate of tax varies depending on the type of business activity.
5. Quarterly filing of return: A person availing the composition scheme is required to file a quarterly return in Form CMP-08. The due date for filing the return is the 18th of the month following the end of the quarter.
6. Compliance with other provisions of the GST Act: A person availing the composition scheme is required to comply with all the other provisions of the GST Act, such as issuing tax invoices, maintaining records of transactions, and producing them for verification when required by the tax authorities.
It is important to note that if a person availing the composition scheme fails to comply with any of these conditions and restrictions, he/she may be liable to pay penalty and may also lose the eligibility to avail of the composition scheme.
Can a person paying tax under composition levy, withdraw voluntarily from the scheme? If so, how?
Yes, a person paying tax under the composition levy can withdraw voluntarily from the scheme. The procedure for withdrawal from the composition scheme is as follows:
1. The taxable person is required to file an application in Form CMP-04 for withdrawal from the composition scheme.
2. The application for withdrawal from the composition scheme must be filed within 30 days from the date on which the person ceases to be eligible for the scheme.
3. The taxable person must pay the tax on the stock of inputs, semi-finished goods, and finished goods held by him/her on the day immediately preceding the date of withdrawal from the scheme. The tax shall be calculated at the applicable rate of tax on such goods.
4. The taxable person is required to furnish a statement in Form ITC-01 within 30 days from the date of withdrawal from the scheme, declaring the details of the inputs, semi-finished goods, and finished goods held by him/her on the day immediately preceding the date of withdrawal and the input tax credit availed on such goods.
Once the person withdraws from the composition scheme, he/she will be required to file regular returns and pay tax as per the provisions of the GST Act. The person will also be eligible to claim input tax credit on the purchases made for the purpose of his/her business.
It is important to note that a person paying tax under the composition levy cannot withdraw from the scheme during the financial year in which he/she has registered under the scheme. The person can withdraw only from the subsequent financial year. Also, once the person withdraws from the composition scheme, he/she will not be eligible to avail of the scheme for the next three financial years.
What are the compliances from ITC reversal point of view that need to be made by a person opting for composition levy?
A person opting for composition levy is not eligible to claim input tax credit on the purchases made for the purpose of his/her business. Hence, there is no requirement for ITC reversal by a person who has opted for the composition scheme.
However, if a person was previously registered under the regular scheme and has opted for the composition scheme, he/she will be required to reverse the ITC availed on inputs held in stock as on the date of opting for the composition scheme. The ITC on inputs held in stock can be calculated as follows:
ITC on inputs held in stock = (Input tax credit available on inputs in stock / Total value of inputs in stock) x Value of inputs in stock on the date of opting for the composition scheme
The ITC reversal amount should be debited to the electronic credit ledger, and the details of the reversal should be furnished in the GST return for the tax period in which the person opts for the composition scheme.
It is important to note that if the ITC reversal amount is not debited to the electronic credit ledger and the details of the reversal are not furnished in the GST return, the person may be liable to pay interest and penalty as per the provisions of the GST Act. Therefore, it is important for registered persons who opt for the composition scheme to ensure that all the compliances related to ITC reversal are fulfilled in a timely and accurate manner.
What action can be taken by the proper officer for contravention of any provisions of composition levy and how?
If a registered person who has opted for the composition scheme contravenes any of the provisions of the composition levy, the proper officer may take the following actions:
1. Issue a show-cause notice: The proper officer may issue a show-cause notice to the taxable person, asking him/her to explain why the composition levy should not be withdrawn.
2. Revoke the composition levy: If the proper officer is satisfied that the registered person has contravened any of the provisions of the composition levy, he/she may revoke the composition levy with effect from the date of the contravention.
3. Demand tax and penalty: If the composition levy is revoked, the registered person will be liable to pay tax at the normal rates on the turnover of his/her business, along with the applicable penalty.
4. Recover the tax and penalty: The proper officer may recover the tax and penalty from the registered person, along with interest, as per the provisions of the GST Act.
5. Prosecute the taxable person: If the proper officer is satisfied that the registered person has committed an offence under the GST Act, he/she may initiate prosecution proceedings against the person.
It is important to note that before taking any action, the proper officer must provide the taxable person with a reasonable opportunity to be heard. The taxable person may submit a written reply to the show-cause notice issued by the proper officer and may also appear in person for a personal hearing. The decision of the proper officer shall be communicated to the taxable person in writing.
What are the penal consequences if a person opts for the composition scheme in violation of the conditions?
If a person opts for the composition scheme in violation of the conditions, the penal consequences are as follows:
1. Withdrawal of composition scheme: The person will be liable to have the composition scheme withdrawn with retrospective effect. The person will then be required to pay tax at the normal rates applicable to his/her business.
2. Penalty: The person will be liable to pay a penalty equal to the amount of tax payable on the supplies made by him/her, which would have been payable if the person had not opted for the composition scheme.
3. Interest: The person will also be liable to pay interest on the amount of tax payable at the applicable rate from the date the tax was due till the date of payment.
4. Prosecution: If the person has deliberately opted for the composition scheme in violation of the conditions, he/she may also be liable for prosecution under the provisions of the GST Act.
It is important to note that opting for the composition scheme in violation of the conditions is a serious offence and can lead to significant financial and legal consequences. Therefore, it is advisable for registered persons to carefully consider the eligibility criteria and conditions before opting for the composition scheme.
What are the other compliances which a provisionally registered person opting to pay tax under the composition levy need to make?
A provisionally registered person opting to pay tax under the composition levy is required to make the following compliances:
1. File intimation: The person is required to file an intimation in FORM GST CMP-02 to opt for the composition levy within 30 days from the date of becoming eligible for the composition scheme.
2. File quarterly return: The person is required to file a quarterly return in FORM GST CMP-08, providing details of the turnover, tax payable and tax paid for the quarter. The due date for filing the quarterly return is the 18th of the month following the quarter.
3. File annual return: The person is also required to file an annual return in FORM GSTR-4, providing details of the turnover, tax payable and tax paid for the financial year. The due date for filing the annual return is 30th April of the next financial year.
4. Maintain records: The person is required to maintain records of all the purchases, sales, output tax payable and paid, and stock held for the purpose of his/her business.
5. Display signboard: The person is required to display a signboard at a prominent place at his/her place of business, indicating that he/she is a registered person paying tax under the composition scheme.
It is important to note that failure to comply with any of the above compliances may attract penalties and interest as per the provisions of the GST Act. Therefore, it is advisable for registered persons opting to pay tax under the composition levy to ensure that all the compliances are fulfilled in a timely and accurate manner.
