Composition Scheme Under GST

Wondering about what is the concept of Composition Levy under GST, its eligibility, advantages, restriction and compliance. Read along to have a crisp idea of the same in easy Q & A format.

Introduction

At the stroke of the midnight of 1st July 2017, India made a new beginning with the launch of GST. The newly introduced tax law is aimed towards simplifying and promoting ease of doing business. Composition levy is one such measure which can be beneficial for the small dealers.

What is composition levy under GST?

• The composition levy is an alternative method of levy of tax designed for small taxpayers whose turnover is up to ₹ 75 lakhs (₹ 50 lakhs in case of few States).

• The objective of composition scheme is to bring simplicity and to reduce the compliance cost for the small taxpayers.

• The Composition levy 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 normal rate.

What are the eligibility criteria for opting composition levy?

The scheme of composition levy can be opted by small tax payers having a turnover up to ₹75 lakhs in the preceding financial year. However the limit of turnover in case of certain states is restricted to ₹50 lakhs.

The states in which the limit of turnover for composition levy is ₹50 lakhs are as follows

• Arunachal Pradesh

• Assam

• Manipur

• Meghalaya

• Mizoram

• Nagaland

• Sikkim

• Tripura

• Himachal Pradesh

Thus all the North Eastern States along with Himachal Pradesh have an upper limit of ₹50 lakhs as eligibility criteria for registering under composition levy.

However following persons are not allowed to opt for the composition levy even if their turnover during the previous year is less than the prescribed limit of Rs. 75 lakhs/ Rs. 50 lakhs.

A casual taxable person or a non-resident taxable person

Casual taxable person means a person who occasionally undertakes transactions involving goods or services or both in the course or furtherance of business, whether as principal, agent or in any other capacity, in a State or a Union territory where he has no fixed place of business;

Non-resident taxable person means any person who occasionally undertakes transactions involving supply of goods or services or both, whether as principal or agent or in any other capacity, but who has no fixed place of business or residence in India.

Both casual taxable person and non-resident taxable person has to be compulsorily registered under section 22.

Supplier who has purchased any goods or services from unregistered supplier unless he has paid GST on such goods or services on reverse charge basis;

A person can be registered under Composition levy only if it had already paid the tax on purchases from unregistered dealer under reverse charge.

Supplier of services, other than restaurant service

The scheme of composition levy is not applicable to a supplier of service except in case of suppliers providing restaurant services. All the service providers but restaurants have to be registered under normal scheme as soon as their turnover exceeds the basic threshold level.

Persons supplying goods which are not taxable under GST law

They are not eligible to register under composition scheme as they are not covered by the provisions of GST Act.

Persons making any inter-State outward supplies of goods

A person registered under composition scheme cannot enter into inter-state supply of goods. Thus a person having inter-state supply of goods is not eligible for composition scheme.

However there is no restriction on inter-state purchase of goods.

Suppliers making any supply of goods through an electronic commerce operator.

Any person who makes any supply through an e commerce platform like Amazon or Flipkart cannot opt for composition scheme.

A manufacturer of Ice-cream, Pan Masala and Tobacco & Manufactured tobacco substitutes.

The eligibility for the composition can be summarized as follows

What are the rates of tax under Composition Levy?

The Government has notified three rates viz. 1%, 2%, and 5% GST applicable to different suppliers of goods and services.

The same can be summarised as follows

What are the provisions for Input Tax Credit under Composition Levy?

A person registered under scheme of Composition Levy in GST cannot avail and utilize the Input Tax Credit paid on the input supplies.

In case where such persons is required to pay tax under reverse charge mechanism, tax shall be paid at the rate applicable to the supplier and Input credit of the same cannot be availed by the composite supplier.

The person registered under composition scheme is not allowed to issue a tax invoice for the supplies made by him. Hence the person receiving supplies from person registered under composition scheme cannot avail the input tax credit on such purchases.

How is the aggregate turnover computed for the purpose of composition levy?

For the purpose of composition levy, aggregate turnover shall be calculated on an all India basis and will include

• Value of all taxable supplies

• Exempt supplies; and

• Export made by all persons under the same PAN

But excludes

• Inwards Supplies under Reverse Charge; and

• CGST/ SGST/ UTGST/ ITCGST and Cess.

It can be interpreted that the branches and other place of business of the same entity located in different states is referred as distinct persons under GST, they shall be regarded as single entity for the purpose of computation of Aggregate Turnover if they have same PAN.

For the purpose of computing Aggregate Turnover, the value of not only taxable supplies but also value of supply of goods or services exempt under GST or not covered under GST and value of Exports are included.

However Aggregate Turnover does not include value of invoices raised for inward supplies under reverse charge and any tax or cess paid under GST.

Aggregate Turnover = Taxable Supply excluding Reverse Charge + Exempt Supplies + Export of Goods and Services + Interstate Transfer to Same PAN

What are the provisions regarding filing returns under Composition Scheme?

A person registered under the scheme of Composition Levy has to file a quarterly return in GSTR- 4, instead of monthly returns to be filed under normal registration.

GSTR- 4 shall contain the details of the turnover in the State or Union territory, inward supplies of goods or services or both and tax payable.

The last date for filing the returns under composition scheme is 18th of the month succeeding the quarter.

For e.g. Return in respect of supplies made during July 2017 to September 2017 is required to be filed by 18th October 2017.

What are the Condition and Restriction for Composition Levy?

As per the provisions of the Composition Rules, 2017,

The person exercising the option to pay tax under Composition Levy shall comply with following conditions:

• He is neither a causal taxable person nor a non-resident taxable person;

• 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.

• The goods held by him have not been purchased from an unregistered supplier and where purchased, he pays tax under Reverse Charge.

• He shall pay tax under sub section (3) or sub section (4) of section 9 on inward supply or both

• He was not engaged in manufacture of prescribed goods (Ice cream, Pan Masala and Tobacco products)

• He shall mention the words “Composition Taxable Person, not eligible to collect tax on supplies” at the top of the supply issued by him; and

• 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 places of business.