Composition Scheme under GST- Question and Answers
Q.What is composition scheme ?
Composition scheme is specially designed for small taxpayers, to get rid of complex GST framework and compliances. Small registered taxpayers can pay tax at fixed rate on the basis of their turnover.
As per Section 10 of CGST Act, 2017, any registered person whose aggregate turnover for preceding financial year did not exceed Rs. 1.5 Crore, (for special states Arunachal Pradesh, Mizoram, Uttarakhand, Nagaland, Manipur, Sikkim, Meghalaya, Tripura turnover limit is Rs. 75 Lakhs), may opt to pay, in place of normal GST rate, an amount as may be prescribed.
Q.Who can not opt for composition ?
The composition scheme is not available for the following registered person-
- Engaged in making of goods which are not leviable to tax under this Act.
- Making Inter-State outward supplies of the goods.
- Engaged in making supply of goods through an electronic commerce operator who is required to collect tax at source under section 52.
- Manufacturer of goods as may be notified by the Government. (Example : Ice cream, Pan Masala, Tobacco).
Q.Can service provider opt for composition scheme ?
The composition scheme for service providers gives taxpayers the option of providing services having aggregate annual turnover up to Rs. 50 lakh, subject to conditions, to pay tax at nominal rate of 6%.
The following persons may opt into this scheme:
- Suppliers of services only (i.e. service providers)
- Suppliers of goods and services (i.e. suppliers who were not eligible to opt the composition scheme)
Earlier Composition scheme could be availed for supply of goods and only one service i.e, Restaurant service. In normal business practices, manufacturers and traders even get involved in the supply of services other than restaurant services. Hence, to enable such taxpayers to avail the benefits of composition scheme, under section 10(1), second provision is inserted. As per this:
Supply of services of following specified value with the supply of goods is permitted :
- 10% of value of turnover in the State/ Union Territory, or
- Rs. 5 Lakhs, whichever is higher.
Q.Is turnover PAN based or GSTIN based ?
If more than one registered person is having same PAN, if any GSTIN wants to opt for the composition scheme, then all GSTIN should opt for composition scheme.
Example : Appo Ltd is having 2 offices in Maharashtra, one in Mumbai and other in Pune. If Appo Ltd, wants to opt for Composition Scheme, it needs to check the aggregate turnover of Mumbai and Pune offices together.
Q. What is included or excluded while determining turnover of preceding financial year ?
Include : Value of all outward supplies i.e. Taxable, Exempt, Export, Inter-State supplies of a person having the same PAN shall be computed
Exclude : CGST/ SGST/ IGST/ CESS/ UTGST. Value of inward supplies on which tax is payable on reverse charge basis.
Q.What is the rate of tax under composition scheme ?
There are 4 rates of tax for the composition levy, they are as follows :
- Manufacturer and Trader : ½ % of turnover in State or Union Territory = 1% (CGST+SGST)
- Persons making supplies as referred in Clause (b) of Paragraph 6 of Schedule II : 2.5% of turnover in State or Union Territory (now referred as Restaurant Services) = 5% (CGST + SGST)
- Other supplies of goods : ½ % of turnover of taxable supplies of goods and services in State or Union Territory = 1% (CGST + SGST)
- Supplier of services : 3% of turnover of taxable supplies of services in state = 6% (CGST + SGST)
Q.What are the taxes paid by the composition dealer ?
The composition dealer needs to pay following taxes :
- Self assessed tax on the outward supplies as per the rate specified under composition levy.
- RCM on inward supplies, if applicable.
These taxes are paid in cash by the taxpayer.
Examples for the applicability of Composition scheme
- VIP Ltd, is engaged in trading of bags, across the whole India. VIP Ltd can not opt for composition scheme because it is having Inter-State supply of goods.
- Colgate Ltd is having turnover of Rs. 99 Lakhs in previous financial year. As turnover of Colgate Ltd is less than Rs. 1.5 Cr in previous financial year, it can opt for composition scheme.
- A to Z Books was having turnover of Rs. 95 Lakhs during previous financial year, and it sell books on Amazon online. Amazon is electronic commerce operator. A to Z Books, however having less than Rs. 1 .5 Crore Turnover in preceding financial year, but as selling books via online commerce operator makes composition scheme unavailable for them.
Q.When and how to opt for composition scheme ?
For opting Composition scheme-
- Person applying for registration –This is the case of new registration under GST. In this case, a person opting for registration shall intimate the same in the Part B of registration form, i.e, GST REG – 01.
- Registered Person – This is the case of existing registration. A person has to file intimation electronically on GST portal (www.gst.gov.in), before the commencement of financial year for which he wants to pay tax under the composition scheme.
To opt for a composition scheme, the taxpayer is required to file an application on the common portal in GST form CMP-02, and after filing the application the taxpayer is required to file GST Form CMP-03 within 90 days from the date of application. Form GST CMP-03 contains details of stock held by the taxpayer on the day of opting the composition scheme.
For opting the scheme, the Registered taxpayers should navigate as follows:
Log-in to the GST Portal >Services > Registration > Application to opt for Composition Levy > filing form GST CMP-02> file application with DSC/EVC.
Existing taxpayer has to intimate for opting the scheme in previous financial year. However, new taxpayer can intimate in the same financial year. Also, taxpayer can not change from normal to composition scheme in between the year.
Q.Procedure for transfer from Composition Scheme to Normal Scheme.
The taxpayer will file an intimation for withdrawal from the composition scheme in the form GSTCMP-04 in order to opt out of composition scheme. The taxpayer must furnish details of stock of inputs, inputs contained in semi-finished and finished goods in GST ITC-01 form. Such details must be submitted within 30 days from the date of filing of the intimation in the form GSTCMP-04.
Q.How will be the invoices for composition scheme ?
A taxpayer opting for composition scheme is not required to issue tax invoice but need to issue Bill of Supply, on which tax is not charged. Also, he shall mention “Composition Taxable Person, not eligible to collect tax” at the top of the Bill of Supply issued by him.
Q.How to pay tax under composition scheme ?
The taxpayer opting to pay taxes as per composition scheme is not entitled to take credit of input taxes paid by him on the purchases of inputs, input services or capital goods. Hence, liability under this scheme shall be paid in the form of cash only ,i.e., through Electronic Cash Ledger only.
Q.What and when the returns are furnished by the taxpayer under composition scheme ?
The taxpayer who has availed composition scheme,
- For every quarter – has to file Form GST CMP-08, online on the portal, till 18th of month succeeding the quarter.
- For every financial year – Form GSTR 4, till 30th April following the end of such financial year.
- Annual Return – in the Form GSTR 9A. Due date of filling annual return of financial year 18-19 is 31st March 2020.
Q. What are the Merits of composition scheme
1. One of the most attracting advantage of composition scheme is that it comes with less compliance. The tax payer is required to file less returns and also the returns require less information as compared to normal scheme.
2. Tax payer is required to maintain records with minimum details.
3. Lower tax rate in case of composition scheme, helps tax payer with high liquid funds. As taxes payable are at lower rate like 1 %, hence funds of taxpayers are not much blocked.
4. As taxpayer has to issue bill of supply, he needs not to worry about classification of goods or services and rates applicable on them.
Q. What are the Demerits of composition scheme
1. Taxpayer is not allowed to take credit of taxes paid on the inputs, input services or capital goods. Also, the person who buys goods from composition dealers can not avail credit on such goods.
2. Taxpayer has to limit the boundary of the business, because he cannot supply goods in the other states. Hence, Inter-state sales is not permitted.
3. Also, in the age of digitalization, taxpayer registered under composition scheme cannot supply goods or services through electronic operator mode.
4. Supply of exempted goods is not covered under the scope of composition scheme.
Example for understanding composition scheme :
A Ltd is having turnover of Rs. 60 Lakh in the previous financial year. Also, it supply goods within the state boundaries. Hence, A Ltd, can avail composition scheme in the current financial year. It has to intimate for opting the scheme before the beginning of current financial year.
A Ltd, now can supply services upto
- Rs. 6 Lakh (10% of 60 Lakh), Or
- Rs 5 Lakh,
Whichever is higher.
Therefore, A Ltd can supply services being composition dealer upto Rs. 6 Lakh in current financial year.
If outward supply during Quarter 1 of the FY, is of Rs. 15 Lakh, the A Ltd has to pay tax at the rate of 10% i.e. Rs. 15000 (7500 CGST + 7500 SGST), and file return CMP – 08 till 18th July.
The authors of above article is CA Ankita Gandhi.
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