Compliances in the GST Law are very high which cannot be complied by the small dealer, small manufacturer and small service provider. For the purpose of above mentioned persons, composition scheme has been prepared. Generally in every law composition scheme is there such as VAT, Excise etc.
Meaning of Composition Scheme:
A composition scheme which is made for the benefit of small dealer, small manufacturer and small service provider by reducing their burden of compliances. Like: Less number of returns, less maintenance of books and records as compared to general dealer.
Who can opt for Composition dealer?
- Dealers and manufacturers, who are supplying goods and whose aggregate turnover does not exceed Rs. 75 Lakh in the preceding financial year. In the previous law there is no benefit to manufacturer but the same is given in GST law.
In case of Special Category States except Uttarakhand the limit will be Rs. 50 Lakh. Specified category States are as below:
- Arunachal Pradesh,
- Himachal Pradesh
- No benefit is given to the service providers but there is an exception is given to the restaurant service providers as mentioned in clause (b) of paragraph 6 of schedule II. If a restaurant service provider is providing services and aggregate turnover does not exceed 75 lakh in the preceding financial year then he is entitled to opt for composition scheme.
Aggregate Turnover means 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 of goods or services or both and
- Inter-State supplies
of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess. [Section 2 (6)]
The definition of aggregate turnover is very wide. The definition of exempt supply includes Non-Taxable supply also. So every supply whether covered under GST or not, is included in the definition of aggregate turnover. Also the aggregate turnover is for all business registered under single PAN.
Impact of becoming a normal dealer from composition dealer
If during the current year turnover exceeds Rs. 75 Lakh then the supplier is required to pay tax as normal dealer. In this case the composition supplier is required to file a FORM GST CMP-04 within 7 days.
Details of stock and capital goods, as on the day when composition dealer is becoming as normal dealer, are required to file in FORM GST ITC-01 within 30 days to take the credit of input on the same.
Terms and Conditions to opt for composition
- Composition scheme will be available for all businesses registered under single PAN. A Supplier is required to opt composition scheme for all business registered under his PAN.
- Supplier shall not be engaged in making the interstate outward supply.
- Supplier shall not be engaged in making any supply of goods which are not leviable to tax under GST Act.
- Manufacturer of following goods are ineligible for composition levy:
- Pan Masala
- All goods under Chapter 24 i.e. Tobacco and Tobacco Substitutes
- The supplier shall not make any supply through e commerce operator.
- The supplier is required to mention “Composition Taxable person not eligible to collect tax on supplies” on the Invoice.
- The supplier is required to mention “Composition Taxable Person” on every notice, signboard displayed at all place of business.
- The supplier should not be a Casual Taxable Person or Non-resident Taxable Person.
- The supplier is required to pay tax on reverse charge basis as provided in Section 9(3) i.e. Inward Supplies from notified persons and Section 9 (4) i.e. Inward Supplies from unregistered person.
- The supplier shall not be a manufacturer of goods as notified in Section 10(2)(e).
- Stock as on appointed day have not been purchased in the course of
- Inter State Trade or commerce
- Imported from a place outside India
- received from his branch situated outside the state
- received from his agent or principal outside the state
- If the supplier has stock as on appointed day which is purchased form unregistered dealer then the supplier is required to pay tax under reverse charge according to subsection 4 of section 9 otherwise he is not entitle to opt composition scheme.
Returns under Composition Scheme:
Quarterly return is required to be filed by a composition supplier in GSTR-4 along with annual return in GSTR -9A. Due date for Quarterly return is 18th of the following month after end of the quarter.
Rate of Tax:
Three rates are defined for composition scheme.
|For Manufacturer other than manufacturer of notified goods||1%||1%||2%|
|Services referred to in clause (b) of paragraph 6 of schedule II||2.5%||2.5%||5%|
|Any Other Supplier||0.5%||0.5%||1%|
Some Important Points:
- If you are registered as composition dealer in previous law i.e. VAT/Excise then also you need to apply for Composition Scheme in GST in FORM GST CMP-01, duly signed within 30 days from the appointed day. However, once option exercised u/s 10 shall remain valid so long as he satisfies all the conditions mentioned in section 10 and Composition Rules.
He also require to 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 for composition, electronically in FORM GST CMP-03 within 60 days of the date from which composition scheme is opted.
- If any registered person i.e. normal dealer wants to opt Composition Scheme shall electronically file intimation in FORM GST CMP-02 prior to the commencement of financial year. He also requires to furnish FORM GST ITC-3 within 60 days from the commencement of the relevant financial year.
In addition to the above, he shall pay an amount, by way of debit in the electronic credit ledger or electronic cash ledger, equivalent to the credit of input tax in respect of inputs held in stock and inputs contained in semi-finished goods or finished goods held in stock and on capital goods, reduced by such percentage points as prescribed in ITC rules on the day immediately preceding the date of exercising such option.
- Any intimation for opting composition scheme for any place of business shall be deemed for all other place of business.
- If the supplier has opted for composition scheme then he is not eligible to collect tax from the appointed day if the application is file after the appointed day but shall issue bill of supply for supplies made after the said day.
- If you are supplying goods to a registered dealer then Composition Scheme is not beneficial for you as the registered dealer is not entitled for input tax credit.
- IGST dealer are not eligible to take the benefit of composition scheme.
- If you are a normal dealer and wants to opt for composition, all credit in your ledger will lapse and included in the cost of goods. [Section 18(4)]
- If you are opting for composition scheme then you are not entitled for Input Tax credit which becomes cost of your product. Now you will add margin & composition tax, credit of which is not available to buyer. So for the purpose of opting composition scheme, you should take decision after considering competition.
- If any registered person wants to withdraw from the composition scheme shall, file an application in FORM GST CMP-04, electronically before the date of such withdrawal.
- Mr. A is running a consulting firm and also a readymade garment showroom which are registered in same PAN. Turnover of the showroom is Rs. 56 lakh and Receipt of the consultancy firm is Rs. 12 Lakh in the preceding financial year.
- a) Whether Mr. A is eligible for Composition Scheme? Whether there is any difference if Mr. A wants to opt for composition only for Showroom?
- b) If instead of consulting agency Mr. A is running a Restaurant, whether he is eligible for composition?
- c) If the turnover of garment showroom is 75 Lakh in the preceding financial year and there is no consulting firm whether he is eligible for Composition?
- Aggregate turnover includes all supplies made by all the persons registered under the single PAN. Exempt supply is included in the definition of aggregate turnover and non-taxable supply is included in the definition of exempt supply. Hence non-taxable supply is also included in aggregate turnover. Service providers are not eligible for Composition.
- a) Mr. A is providing services in consulting firm hence he is not eligible for composition scheme. If a business is ineligible to opt for composition then all other business registered under the same PAN shall automatically ineligible for the composition scheme. So Mr. A is not eligible for composition scheme only for showroom also.
- b) Restaurant services are eligible for the composition scheme. Hence Mr. A is eligible for Composition Scheme.
- c) Yes, Mr. A is eligible for composition scheme as turnover of his firm does not exceed Rs. 75 lakh in the preceding F.Y.
Examples 2 :
- Mr. A is dealer who is selling goods which are leviable to GST, exempted goods and non-taxable goods. His turnover in the preceding f.y. is 55 lakh, 10 lakh, 15 lakh goods which are leviable to GST, exempted goods and non-taxable goods respectively. Whether MR. A is eligible for Composition Scheme?
Aggregate Turnover includes all type of supplies made by all persons registered under single PAN. If a person is selling the goods which are not leviable to tax under GST then he is not eligible to opt for composition scheme. In this case aggregate turnover exceeds Rs. 75 lakh also he is making supply of goods which are not leviable to tax. So, Mr. A is not eligible for composition Scheme.
Examples 3 :
Mr. A registered in Rajasthan, who is selling goods from Rajasthan to Gujrat. Turnover of Mr. A is Rs. 73 Lakh in the preceding financial year. Whether Mr. A is eligible for Composition?
Whether your answer will change if Mr. A is making purchase from Gujrat and selling goods in Rajasthan?
Answer: Mr. A is not eligible for composition as he is making interstate outward supply.
If Mr. A is making purchase form Gujrat then he is eligible for composition as there is restriction on outward interstate supply not on inward interstate supply.
- Mr. A is selling goods from through e-commerce operator. Turnover of preceding financial year is Rs. 71 lakh. Whether Mr. A is eligible for composition?
Answer:No, Mr. A is selling goods through e commerce operator, hence he is not eligible for composition scheme.
- Mr. A registered under VAT purchased goods from Mr. B unregistered under VAT. As on appointed day goods purchased from Mr.B is in stock of Mr. A. Mr. A wants to opt for composition Scheme. Whether Mr. A is eligible for Composition.
Whether your answer will change if the above goods are purchased by Mr. A in the course of interstate trade?
Answer:Yes, Mr. A is eligible for composition scheme but he is required to pay tax u/s 9(4) on stocks held as on appointed day purchased from the unregistered dealer.
Yes, if the stock held as on appointed day, contain goods purchased in the course of interstate trade then Mr. A is not eligible for Composition Scheme.
- Mr. A is obtained a registration of casual taxable person to make a display in exhibition. His turnover from the exhibition is 15 lakh. Whether Mr. A is eligible for Composition?
Answer:Mr. A is not eligible for composition as casual taxable person are specifically excluded from the composition scheme.
- Turnover of Mr. A in the preceding financial year is Rs. 69 Lakh. Mr. A has opted for Composition Scheme. During the year on 18th February 2018, turnover of Mr. A exceeds Rs. 75 Lakh. What compliances are required to do by Mr. A.
Answer: Mr. A is required to do the following compliances:
- File a FORM GST CMP-04 within 7 days i.e. before 25th February 2018.
- Details of stock and capital goods, as on the 18th February, 2018, are required to file in FORM GST ITC-01 within 30 days i.e. before 20th March 2018 to take the credit of input on the same.
- Mr. A is non-resident taxable person is running a readymade garment showroom in the Rajasthan. Turnover for the preceding financial year is Rs. 70 Lakh. Whether he is eligible to opt for composition scheme?
Answer:Mr. A is not eligible for Composition Scheme as non-resident taxable person are specifically excluded from the composition scheme.