Composition Scheme Under GST. Composite Dealer|Composite Tax

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Composition Scheme Under GST

Composition Levy

(1) Any person who has been granted registration on a provisional basis under clause (b) of sub-rule (1) of rule 24 and who opts to pay tax under section 10, shall electronically file an intimation in FORM GST CMP-01, duly signed or verified through electronic verification code, 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:

Provided that 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.

(2) Any person who applies for registration under sub-rule (1) of rule 8 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.

(3) Any registered person who opts to pay tax under section 10 shall electronically file an intimation in FORM GST CMP-02, duly signed or verified through electronic verification code, 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-03 in accordance with the provisions of sub-rule (4) of rule 44 within a period of sixty days from the commencement of the relevant financial year.

(4) Any person who files an intimation under sub-rule (1) 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 a period of sixty days from the date on which the option for composition levy is exercised or within such further period as may be extended by the Commissioner in this behalf.

(5) Any intimation under sub-rule (1) or sub-rule (3) 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 Permanent Account Number.

Effective Date for Composition Levy

(1) The option to pay tax under section 10 shall be effective from the beginning of the financial year, where the intimation is filed under subrule (3) of rule 3 and the appointed day where the intimation is filed under sub-rule (1) of the said rule.

(2) The intimation under sub-rule (2) of rule 3, shall be considered only after the grant of registration to the applicant and his option to pay tax under section 10 shall be effective from the date fixed under sub-rule (2) or (3) of rule 10.

Conditions and Restrictions for Composition Levy

(1) The person exercising the option to pay tax under section 10 shall comply with the following conditions, namely:-

(a) he is neither a casual taxable person nor a non-resident taxable person;

(b) 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, where the option is exercised under sub-rule (1) of rule 3;

(c) the goods held in stock by him have not been purchased from an unregistered supplier and where purchased, he pays the tax under
sub-section (4) of section 9;

(d) he shall pay tax under sub-section (3) or sub-section (4) of section 9 on inward supply of goods or services or both;

(e) 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;

(f) 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; and

(g) 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.

(2) The registered person paying tax under section 10 may not file a fresh
intimation every year and he may continue to pay tax under the said section subject to the provisions of the Act and these rules.

Validity of Composition Levy

 (1) The option exercised by a registered person to pay tax under section 10 shall remain valid so long as he satisfies all the conditions mentioned in the said section and under these rules.

(2) The person referred to in sub-rule (1) 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 the provisions of this Chapter 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 the occurrence of such event.

(3) 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 or verified through electronic verification code, electronically on the common portal.

(4) 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 provisions of this Chapter, 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 the option to pay tax under section 10 shall not be denied.

(5) Upon receipt of the reply to the show cause notice issued under sub-rule (4) from the registered person in FORM GST CMP-06, the proper officer shall issue an order in FORM GST CMP-07 within a period of thirty days of the receipt of such reply, either accepting the reply, or denying the option to pay tax under section 10 from the date of the option or from the date of the event concerning such contravention, as the case may be.

(6) Every person who has furnished an intimation under sub-rule (2) or filed an application for withdrawal under sub-rule (3) or a person in respect of whom an order of withdrawal of option has been passed in FORM GST CMP-07 under sub-rule (5), may 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 a period of thirty days from the date from which the option is withdrawn or from the date of the order passed in FORM GST CMP-07, as the case may be.

(7) Any intimation or application for withdrawal under sub-rule (2) or (3) or denial of the option to pay tax under section 10 in accordance with sub-rule (5) 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 Permanent Account Number. Composition Scheme is a simple and easy scheme under GST for taxpayers. Small taxpayers can get rid of tedious GST formalities and pay GST at a fixed rate of turnover. This scheme can be opted by any taxpayer whose turnover is less than Rs. 1.0 crore.

QUICK FACT:

1. Who can opt for Composition Scheme

A taxpayer whose turnover is below Rs 1.0 crore* can opt for Composition Scheme.

In case of North-Eastern states and Himachal Pradesh, the limit is now Rs 75 lakh.

Turnover of all businesses registered with the same PAN should be taken into consideration to calculate turnover. 

2. Who cannot opt for Composition Scheme

The following people cannot opt for the scheme:

• Supplier of services other than restaurant related services
• Manufacturer of ice cream, pan masala, or tobacco
• Casual taxable person or a non-resident taxable person
• Businesses which supply goods through an e-commerce operator

3. What are the conditions for availing Composition Scheme?

The following conditions must be satisfied in order to opt for composition scheme:

• No Input Tax Credit can be claimed by a dealer opting for composition scheme
• The taxpayer cannot make any inter-state supply of goods.
• The dealer cannot supply GST exempted goods
• Taxpayer has to pay tax at normal rates for transactions under Reverse Charge Mechanism
• If a taxable person has different segments of businesses (such as textile, electronic accessories, groceries, etc.) under the same PAN, they must register all such businesses under the scheme collectively or opt out of the scheme.
• The taxpayer has to mention the words ‘composition taxable person’ on every notice or signboard displayed prominently at their place of business.
• The taxpayer has to mention the words ‘composition taxable person’ on every bill of supply issued by him.
• Those supplying goods can provide services of upto Rs. 5 lakh,

4. How can a taxpayer opt for composition scheme?

To opt for composition scheme a taxpayer has to file GST CMP-02 with the government. This can be done online by logging into the GST Portal.

This intimation should be given at the beginning of every Financial Year by a dealer wanting to opt for Composition Scheme.

Here is a step by step Guide to File CMP-02 on GST Portal.

5. How Should a Composition Dealer raise bill?

A composition dealer cannot issue tax invoice. This is because a composition dealer cannot charge tax from their customers. They need to pay tax out of their own pocket.

Hence, the dealer has to issue a Bill of Supply.

The dealer should also mention “composition taxable person, not eligible to collect tax on supplies”  at the top of the Bill of Supply.

6. What are the GST rates for a composition dealer?

For Manufacturer and Traders:- CGST- 0.5% and SGST- 0.5%

For Resturants( Not serving Alchohal) - CGST- 2.5% AND SGST-2.5%

As per notification dated 01.01.2018, turnover in case of traders has been defined as ‘ Turnover of taxable supplies of goods’.

7. How should GST payment be made by a composition dealer?

GST Payment has to be made out of pocket for the supplies made.

The GST payment to be made by a composition dealer comprises of the following:

• GST on supplies made.
• Tax on reverse charge
• Tax on purchase from unregistered dealer.

8. What are the returns to be filed by a composition dealer?

A dealer is required to file a quarterly return GSTR-4 by 18th of the month after the end of the quarter. Also, an annual return GSTR-9A has to be filed by 31st December of next financial year.

Also, note that a dealer registered under composition scheme is not required to maintain detailed records.

9. What are the advantages of Composition Scheme?

The following are the advantages of registering under composition scheme:

• Lesser compliance (returns, maintaining books of record, issuance of invoices)
• Limited tax liability
• High liquidity as taxes are at a lower rate

10. What are the disadvantages of Composition Scheme?

Let us now see the disadvantages of registering under GST composition scheme:

• A limited territory of business. The dealer is barred from carrying out inter-state transactions
• No Input Tax Credit available to composition dealers
• The taxpayer will not be eligible to supply exempt goods or  goods through an e-commerce portal.

FAQ-Composition Scheme

1. Who can opt for Composition Scheme?

Businesses with annual turnover up to Rs 1.0 crore* can opt for composition scheme.

Turnover of all businesses with same PAN has to be added up to calculate turnover for the purpose of composition scheme.

Only Manufacturers of goods, Dealers, and Restaurants (not serving alcohol) can opt for composition scheme.

* The threshold limit for opting into composition scheme is recommended for an increase to Rs. 1.5 crores but yet to be notified.

2. What is the tax rate applicable to a Composition Dealer?

Please use the chart below to understand the tax rate on turnover applicable:

For Manufacturer and Traders:- CGST- 0.5% and SGST- 0.5%

For Resturants( Not serving Alchohal) - CGST- 2.5% AND SGST-2.5%

As per notification dated 01.01.2018, turnover in case of traders has been defined as ‘ Turnover of taxable supplies of goods’.

3. Is liability to pay taxes under Reverse Charge Mechanism covered under the Composition Scheme?

A Composition Dealer has to pay tax under Reverse Charge Mechanism wherever applicable.

The rate applicable to the supplies is the rate at which GST has to be paid. This means that rate under composition scheme should not be used for reverse charge purposes.

Also, no ITC is available for tax paid under reverse charge for a composition dealer. 

4. I am purchasing goods from an unregistered dealer. Do I  need to pay tax?

Tax at normal rates has to be paid on purchases from an unregistered dealer only for the months of July and August 2017. From September there is no need to pay tax on these purchases.

No ITC is available on tax paid under reverse charge.

5. Should I pay IGST interstate purchases attracting reverse charge?

IGST should not be paid by a composition dealer. The dealer is required to pay tax under reverse charge, import of service or purchase from an unregistered dealer has to pay only CGST and SGST.

6. How should the Tax amount be calculated?

A composition dealer is required to pay tax at a specific rate on total sales. Also, the dealer has to pay tax under reverse charge on specified purchases, purchase form unregistered dealer and import of services.

This means that Total GST Payable =

Tax on supplies (net of advance and goods returned)

+ Tax on B2B transactions where Reverse Charge is applicable

+ Tax on B2B purchases from Unregistered suppliers (July and August 2017)

+ Tax on Import of Services

The rate of Tax on transactions under Reverse Charge, purchase from an unregistered dealer and import of services will be at normal rates, i.e. the rates applicable to the supplies. Rates under Composition Scheme are applicable only to sales of a composition dealer.

7. Should a Composition Dealer maintain detailed records?

No, a dealer registered under composition scheme is not required to maintain detailed records as required by a normal taxpayer.

8. Can Composition Dealers avail Input Tax Credit?

No, a Composition Dealer is not allowed to avail input tax credit of GST on purchases.

9. Can a Composition Dealer issue Tax Invoices?

A Composition Dealer has to issue Bill of Supply. They cannot issue a tax invoice. This is because the tax has to be paid by the dealer out of pocket. A Composition Dealer is not allowed to recover the GST from the customers.

10. What are the returns to be filed by a Composition Dealer?

The taxable person is required to furnish only one return i.e. GSTR-4 on a quarterly basis and an annual return in FORM GSTR-9A.

Also, auto drafted details are not available for a composition dealer for the quarters July – September, and October – December. This means that all sales details have to be manually entered by the Composition Dealer.

11. Can a Composition Dealer collect tax from customers?

No, a Composition Dealer is not allowed to collect composition tax from the buyer.

12. Can a dealer involved in interstate supplies opt for Composition Scheme?

Composition Scheme is available only for dealers doing intra-state supplies. If a dealer is involved in inter-State supplies, then they have to opt out of the scheme.

13. What are the transition provisions if a business transits from Composition Scheme under old regime to Regular Taxation under GST?

Taxpayers registered under composition scheme under VAT will be allowed to take credit of input in stock, or in semi-finished goods or in finished goods held on the day before the day of opting out of composition scheme.

14. What are the conditions for availing input credit on stock lying at the time of transition?

Following are the conditions which must be addressed by the taxpayer to avail credit on input at the time of transition from composition scheme to the normal scheme:

1. Inputs or goods will be used for making taxable supplies.
2. The CENVAT Credit was eligible to be claimed in the previous regime, however, couldn’t claim it being under composition scheme.
3. ITC is eligible for availing under GST regime.
4. The taxpayer has bills of input tax paid on such goods.
5. Invoices should not be older than 1 year from 1st July 2017 (i.e. not dated before 1st July 2016)

15. What is the treatment for input credit availed when transitioning from normal scheme to Composition Scheme?

When switching from normal scheme to composition scheme, the taxpayer shall be liable to pay an amount equal to the credit of input tax in respect of inputs held in stock on the day immediately preceding the date of such switchover. The balance of input tax credit after payment of such amount, if any lying in the credit ledger shall lapse.

16. Can I opt for Composition Scheme in one year and opt out in next year?

Yes, this is possible. You can opt to switch between the Composition Scheme and the normal scheme based on your turnover. However, you will have to keep in mind that this will affect the way you issue invoices and file your returns.

The declaration of change can be submitted on the GST Portal.

17. I have many branches. Will composition scheme apply to each of them separately?

If Composition Scheme is opted for all businesses that are associated with this PAN

18. Is it true that Composition Dealers can sell a product at a lower price than regular dealers?

Yes. Composition dealers cannot charge GST on their sales. So the end consumer pays less money than usual.

19. Can I opt-in for composition scheme anytime during the year?

No. Before the beginning of every financial year, a registered taxpayer is required to provide a declaration on the GST Portal. This cannot be done anytime during the year.

20. What will happen if I opt out of composition scheme mid-year?

When a dealer opts out of composition scheme all the normal rules are applicable from the day of opting out.

For example, a composition dealer opts out of composition scheme on 15th October 2017. This means that the dealer will have to file two GSTR-4 for the quarters July – September, and October (15 days). The dealer will also have to file GSTR-1, GSTR-2, and GSTR-3 for the period of October 2017 (sales from 15th October until end of the month)

CMA GAURAV KUMAR

IPLAP

The Institute of Practical learning for Accounting Professionals