Friday, July 14, 2017

Composition Scheme under GST

Every tax system requires compliance with statutory provisions which more often than not pose a challenge to small businesses. Therefore, such small businesses can opt for composition levy as per provisions u/s 10 of CGST Act, 2017 and pay GST as a fixed percent on turnover.

Composition Scheme under GST is merely an extension of the current scheme under VAT law.

Only dealers and manufacturers of goods are entitled to opt for composition scheme.
Services providers have been kept outside the scope of this scheme. However, an exception is made for the restaurant service providers.

Turnover Limit

For opting composition scheme, the aggregate turnover in the preceding year must not be more than Rs. 75 lacs.
The aggregate turnover limit for the Special Category States (Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Tripura, Sikkim, Himachal Pradesh) is Rs. 50 lacs.

Limit for the state of Jammu & Kashmir is yet to be decided.

Aggregate Turnover shall include the aggregate value of-

- All taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis),
- Exempt supplies,
- Exports supplies,
- Inter-State supplies

Tax Rates

Tax rates of taxpayers registered under the Composite Scheme shall be as follows:

Category of Taxpayers
Restaurant Service Providers
Other Suppliers

Persons Excluded from the Composition Scheme

- Persons supplying service(s)
- Casual taxable person
- Non-resident taxable person
- Persons making inter-state supply of goods
- Persons supplying goods not taxable under GST
- Persons supplying goods through e-commerce and liable to collect taxes at source
- Persons manufacturing such goods as may be notified
- The goods held by the person in stock on the appointed date were purchased from a place outside his state.
- Where the person deals with unregistered person and tax remains unpaid or stock is held.

Where a taxable person has different business segments with the same PAN as held by the taxable person, he shall not be eligible for the scheme unless he has registered all such businesses under the scheme.

Effective Date for Composition Levy

Effective Date
For persons already registered under pre-GST regime
Appointed Day
For persons registered under GST switching to Composition Scheme
Filing of Intimation
For persons who applied for fresh register under GST to opt scheme where the application for registration has been submitted within 30 days from the day he becomes liable for registration
Such Date

Salient features:

Ease in Maintenance of Records

A dealer registered under composition scheme is not required to maintain detailed records as in the case of a normal taxpayer.

Ineligibility to Collect Tax and Avail Input Tax Credit

A taxpayer under the scheme is not allowed to
- recover any tax from the buyer i.e. the burden of such tax is to be borne by taxpayer himself.
- avail input tax credit of GST paid to their supplier

Since the above restrictions have been imposed by the scheme, the tax payer cannot issue a tax invoice either.

Ineligibility to Continue under the Scheme

The option availed by the registered supplier shall lapse with effect from the day on which his aggregate turnover increases the specified limit.

He 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 7 days of occurrence of such event.

Transition Provisions

Taxpayers registered under the current composition scheme will be allowed to take credit of input held in stock/semi-finished goods/finished goods on the day immediately preceding the date from which they opt to be taxed as a regular tax payer, provided they satisfy the following conditions:
  • Such inputs/goods are intended to be used for making taxable supplies under GST. 
  • He was eligible for CENVAT Credit on such goods under the previous regime, but was unable to claim it being under composition scheme. 
  • Such goods are eligible for Input Tax Credit under GST. 
  • He has legal evidence of input tax paid on such goods. 
  • Those invoices or documents should not be older than 12 months before the appointed date. 
Any balance which is left in Input Tax Credit account after such payment will lapse and not usable.

Returns to be Filed

- Quarterly return: FORM GSTR-4 (to be filed by the 18th of the following month of quarter)
- Annual return: FORM GSTR-9A


If the tax administration has reason to believe that a composition dealer has wrongly availed the benefit under the composition scheme, then such a person shall be liable to pay all the taxes which he would have paid under the normal scheme.

A penalty equivalent to an amount of tax payable will also be levied on giving a show cause notice to the dealer.

- Compiled by Kashika Ahuja