GST Composition Scheme

GST Composition Scheme

The Changes were Introduced for the Taxpayers Under Composition Scheme in FY 2020-21:

  • Last Date of GST CMP 02- The last date for filing the Form GST CMP 02 was extended to 30th June 2020. The registered and unregistered taxpayers under the GST Act 2017 can now opt-in for the Composition Scheme by the new date.
  • Provisions Related to GSTR 1 and GSTR 3B- The taxpayers who want to opt for the Composition scheme have been instructed that they will not be filing GSTR 1 or GSTR 3B for the year 2020-21 through any GSTIN or registered PAN. If the assessees fail to do so, then they will not be provided an option to opt for the Composition Scheme.
  • Provisions Related to Re-opting Composition Scheme- If any assessee has already opted for the Composition Scheme in the past, they are not required to opt for the scheme again. They will be considered under the scheme by default.
  • Last Date of GST ITC 03- The last date to file Form GST ITC 03 regarding the reverse of ITC for the stock in hand is being extended to 31st July 2020 for the convenience of assesses.
  • Earlier Advisory Modified- The advisory issued previously on 18th February 2020, which is available on the GST Portal, hereby stands modified by the newly issued advisory.

The Composition Scheme

The composition levy is an alternative method of levy of tax designed for small taxpayers whose turnover is up to Rs. 1 Crore ( Rs. 75 lakhs in case of few States). The objective of the composition scheme is to bring simplicity and to reduce the compliance cost for the small taxpayers. Moreover, it is optional and the eligible person opting to pay tax under this scheme can pay tax at a prescribed percentage of his turnover every quarter, instead of paying tax at a normal rate. 

In the case of the following States, the limit of turnover is Rs. 75 lakhs:-
a) Arunachal Pradesh
b) Assam
c) Manipur
d) Meghalaya
e) Mizoram
f) Nagaland
g) Sikkim
h) Tripura
i) Himachal Pradesh

Rate of Tax under Composition Scheme 

S. No. Category of Registered person       Rate of Tax
1 Manufacturers, other than manufacturers of such goods as may be notified by the Government (Ice cream, Pan Masala, Tobacco products, etc.) 2% ( 1% Central tax plus 1% State tax) of the turnover
2 Restaurant Services 5% ( 2.5% Central tax plus 2.5% SGST) of the turnover
3 Traders or any other supplier eligible for
composition levy
1% ( 0.5% Central tax plus 0.5% State tax) of the turnover 

 Persons not  eligible for composition scheme

  • a casual taxable person or a non-resident taxable person;
  • suppliers whose aggregate turnover in the preceding financial year crossed Rs. 75 lakhs;
  • the supplier who has purchased any goods or services from an unregistered supplier unless he has paid GST on such goods or services on a reverse charge basis;
  • supplier of services, other than restaurant service;
  • persons supplying goods which are not taxable under GST law;
  • persons making any inter-State outward supplies of goods;
  • suppliers making any supply of goods through an electronic commerce operator who is required to collect tax at source under section 52; and
  • a manufacturer of the following goods:
    Ice cream and other edible ice, whether or not containing cocoa which mentions in 1 2105 00 00 in tariff 
    Pan masala which mentions in chapter or Tariff item 2 2106 90 20
    Tobacco and manufactured tobacco substitutes which mention in chapter or Tariff item 3 24

Let’s look at some of the common questions around the Composition Scheme that businesses should know.

When will a person opt for a composition levy pay tax?

A person opting for composition levy will have to pay tax on a quarterly basis before the 18th of the month succeeding the quarter during which the supplies were made. 

Can a person who has opted to pay tax under the composition scheme avail Input Tax Credit on his inward supplies?

No, A taxable person opting to pay tax under the composition scheme is out of the credit chain. He cannot take credit on his input supplies. When he switches over from composition scheme to normal scheme, eligible credit on the date of transition would be allowed

Can a registered person, who purchases goods from a taxable person paying tax under the composition scheme, avail credit of tax paid on purchases made from the composition dealer?

No,  As the composition dealer cannot collect tax paid by him on outward supplies from his customers, the registered person making purchases from a taxable person paying tax under the composition scheme cannot avail credit.

Can a person pay tax under the composition scheme issue a tax invoice under GST?

No. He can issue a bill of supply in lieu of tax invoice

Are monthly returns required to be filed by the person opting to pay tax under the composition scheme?

No. Such persons need to electronically file quarterly returns in Form GSTR-4 on the GSTN common portal by the 18th of the month succeeding the quarter. For example return in respect of supplies made from July 2017 to September 2017 is required to be filed by 18th October 2017.

What is the basic information that needs to be furnished in GSTR-4?

It would contain details of the turnover in the State or Union territory, inward supplies of goods or services or both and tax payable.

A person opting to pay tax under the composition scheme receives inputs/input services from an unregistered person. Will the composition taxpayer have to pay GST under reverse charge? If yes, in what manner?

Yes. Tax will have to be paid on such supplies by the composition taxpayer under the reverse charge mechanism. The tax can be paid by the 18th day of the month succeeding the quarter in which such supplies were received. The information relating to such supplies should be shown by the composition taxpayer in Table 4 of return in FORM GSTR -4.

What is the form in which an intimation for payment of tax under composition scheme needs to be made by the taxable person?

The intimation is to be filed electronically in FORM GST CMP- 01 of FORM GST CMP- 02

Can a person making an application for fresh registration under GST opt for composition levy at the time of making an application for registration?

Yes. Such persons can give the option to pay tax under the composition scheme in Part B of FORM GST REG-01. This will be considered as an intimation to pay tax under the composition scheme.

Can the option to pay tax under composition levy be exercised at any time of the year?

No. The option is required to be given electronically in FORM GST CMP-02, prior to the commencement of the relevant financial year. 

In case the option to pay tax under composition levy is denied by the proper officer, can the person avail ITC on the stock after denial?

Yes. ITC can be availed by filing, 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 denied as per order in FORM GST CMP07, within a period of thirty days from the order.

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