Composition Scheme under GST 2022

There are three types of industries from turnover point of view.  

• Small Turnover industries
• Medium Turnover Industries
• Large turnover Industries.

It is usually found that the small turnover industries cannot afford excessive compliances and consulting of highly professional personas. Even very difficult for them to identify the rates of various products and services and charging the different rates of goods and services in bills.  Difficult for them to manage input tax credit and utilization of the same in effective manner. As well charging excessive GST rates for such small turnover companies is not viable from business and economy point of view.

Therefore the government has introduced since the inception of GST law, a gst composition scheme for such small turnover industries to promote such industries and keep them safe from the excessive cost of compliances, over tax burden and other difficulties  

What is composition scheme in GST?

There is no any definition of Composition Scheme in GST Act. But based on Section 10 of CGST Act 2017, it can be explained as under

The word Composition is also known as settlement. So as the name suggest, this is the scheme only for settlement to small tax payers. Normally tax payers in GST are to pay tax under sub section 1 of Section 9 of CGST Act 2017. But certain tax payers based on turnover criteria have been excluded from Section 9(1) of CGST Act, 2017 and such persons are to pay only a fixed and very small % of tax on their total turnover without charging such tax on bill. While paying tax they are not to utilize any ITC. This is known as composition scheme gst in simple words.

Applicability of Composition Scheme in GST|Composition Scheme Limit

This composition levy in gst is under Section 10(1) of CGST Act 2017

• This composition levy under GST  is available in Sub Section 1 of Section 10 of CGST Act 2017
• This composition Scheme under GST rate is available to eligible registered person whose aggregate turnover during the preceding financial did not exceed Rs 1.50 crore.
• If there are more than one registration in GST under the same pan, then aggregate of turnover of all GST registrations  should not exceed Rs 1.50 crore.
• The registered person who avails this GST Composition Scheme is known as GST Composition Dealer

So in simple word we can say that gst composition scheme turnover limit is Rs 1.50 crore.

Refer Notification 14/2017 Central Tax of CGST Act 2017

This aggregate turnover shall not include the following

• Supply from first 1^ST April to date when he becomes liable for registration
• Exempt supply of services in form of Interest/Discount on deposits, loans and advances.

Refer Explanation 1 of Section 10 of CGST Act 2017

• This composition levy Scheme is available only to Manufacturers, Restaurants and Traders.

However, they can supply services of maximum value not exceeding ten per cent of turnover in a State or Union territory in the preceding financial year or five lakh rupees, whichever is higher.

Refer Second proviso of Section 10(1) of CGST Act 2017 read with Removal of Difficulty Order No 01/2019 dated 01/02/2019

However this composition gst scheme shall not be applicable to manufacturers of the following goods

GST Composition Scheme Rate

GST Rates applicable in this composition scheme are as under

Value on which GST Rates of Composition Scheme in GST shall be applied

These GST Rates will be applicable on turnover in the State/UT

This turnover in the State/UT shall not include the following

• Supply from first 1^ST April to date when he becomes liable for registration
• Exempt supply of services in form of Interest/Discount on deposits, loans and advances.

(As per Explaantion-2 of CGST Act 2

Note:

For Traders 1% GST will be applicable only on taxable turnover in the state/UT. So this exclusion of interest/discount exempt in come from turnover does not give any sense for traders.

GST Composition Scheme for Special Category States

This Composition Scheme will be available to special category states if aggregate turnover in the preceding financial year is not exceeding Rs 75 lakhs

So in simple words, GST Composition Scheme Limit for special category state is Rs 75 lakhs.

Special category states are

• Arunachal Pradesh
• Manipur
• Meghalaya
• Mizoram
•  Nagaland
• Sikkim
• Tripura
• Uttarakhand

Refer Notification 14/2017 Central Tax dated 07-03-2019

Note: All other provisions of composition scheme shall be applicable to composition scheme in special category states also.

Non applicability of Composition Scheme in GST

Composition Scheme in GST shall not be applicable in following cases

• This scheme is not applicable to Supplier of services except restaurant service. Means it is applicable only to Manufacturers, Traders and Restaurant Service

However suppliers will be eligible for this composition scheme if total value of service is not exceeding ten per cent of turnover in a State or Union territory in the preceding financial year or five lakh rupees, whichever is higher.

•  This scheme in GST is not applicable if suppliers is making Inter State Outward Supply of goods or services.
• This  scheme shall not be applicable to those who supply goods and or services through electronic commerce operator who is required to collect tax at source under section 52
• This scheme is not applicable to manufacturer of certain notified goods. Information about this is already given in this article in above para.
• This scheme is not applicable to casual taxable person and non-resident taxable person

      Refer Section 10(2) of CGST Act 2017

What care should be taken in Composition Scheme in GST?

• Such composition dearer will also have to pay GST on Reverse Charge Mechanism  (RCM) under Section 9(3) and Section 9(4) of CGST Act 2017
• 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;
• 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.

          Refer Rule 5 of CGST Act 2017

Can Composition Tax Dealer collect tax in bill?/GST Composition Invoice

Person availing this GST Composition Scheme shall not be entitled to charge GST on bill.

Refer Section 10(4) of CGST Act 2017

Can Composition Tax Dealer take Input Tax Credit?

Person availing this GST Composition Scheme shall not be entitled to take any Input Tax Credit. Means he will have to pay GST @1% or 5% as the case may be on turnover in State/UT without taking any Input Tax Credit.

Refer Section 10(4) of CGST Act 2017

More than one registration in GST under same PAN

Where more than one registered persons are having the same Permanent Account Number (issued under the Income-tax Act, 1961) (43 of 1961) , the registered person shall not be eligible to opt for the scheme of Composition Scheme in GST  unless  all such registered persons opt to pay tax under Composition Scheme.

Refer Section 10(2) of CGST Act 2017

In simple language we say that when there are more than one registration under the same PAN, then it is not possible that in one GST registration pay tax on regular basis and on another GST registration pay tax under Composition Scheme. If one wants to avail the benefit of composition scheme, then he will have to opt for composition scheme for all GST registrations under the same PAN.

Remember tax payer can avail the benefit of composition scheme only if his aggregate turnover of all the GST registrations under same PAN is not exceeding Rs 1.5 cr

How to apply for Composition Scheme in GST?

If any person wants a Composition GST registration.

At the time of registration in form GST REG-1, he will have to give option to pay tax under Section 10 of CGST Act in Part-B of form GST-REG-1. So such person shall be granted GST composition scheme registration.

If any person  is already registered in GST and now wants to shift in composition scheme

Such registered person will have to electronically file an intimation in FORM GST CMP-02, prior to the commencement of the financial year for which the option to pay tax under composition scheme   is exercised

Then he will have to furnish the statement in FORM GST ITC-03 within a period of sixty days from the commencement of the relevant financial year.

In this case effective date of registration under Composition Scheme will be 1^st April of the financial year for which the option to pay tax under composition scheme is exercised

Note:

GST ITC-03 is Declaration for intimation of ITC reversal/payment of tax on input held on stock, inputs contained in semi-finished and finished goods and finished goods held in stock and capital goods under sub-section (4) of section 18.

What are the Compliances in Composition Scheme in GST?

Composition Dealer will have to file the following compliances

Cancellation of Composition Scheme

Registered persons who is no more eligible for composition Scheme now

This composition scheme shall laps with effect from the day on which aggregate turnover during a financial year exceeds Rs 1.5 cr or Rs 75 lakhs as the case may be

Such person shall file an intimation for withdrawal from the scheme in FORM GST CMP-04 within seven days of the occurrence of such event as above mentioned.

Refer Section 10(3) of CGST Act 2017and Rule 6(2) of CGST Rules 2017

Registered person who intends to withdraw from the composition scheme 

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

File form GST ITC-01

The person who has given intimation/application under form GST CMP-04 will have to file 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.

GST Composition Scheme for service suppliers

There is one another composition scheme in GST for only service suppliers

This composition scheme is under Section 10(2A) of CGST Act 2017

• This scheme was introduced by Notification 02/2019 Central Tax (Rate) dated 07/03/2019 w.e.f. 01.04.2019. Composite GST rate is 6% notified in this notification. This scheme was in operation in 2019‐20 by this notification.
• In simple words, GST under Composition Scheme for service providers is 6%
•  Same will be operational now as per Section 10(2A) of CGST Act 2017 from the year 2020‐21.
• Registered person can avail the benefit of this Composition Scheme only if he is not falling in Composition Scheme under Section 10(1) of CGST Act 2017. Means not falling in composition scheme which we have already discussed above.
• This composition Scheme is available to registered person who is providing services only whose aggregate turnover during the preceding financial did not exceed Rs 50 lakhs. So such composition dealer under GST shall pay GST only @ 6% by availing the benefit of this scheme. Here GST turnover limit for composition scheme is Rs 50 lakhs. [(Section 10 (2A) of CGST Act 2017]

• This aggregate turnover shall not include the Supply from first 1^ST April to date when he becomes liable for registration and exempt supply of services in form of Interest/Discount on deposits, loans and advances.

Note: Here I have concluded that this composition scheme under GST limit is applicable only to supplier of services. Reason behind is that, if he is suppliers of goods, then he will be falling in Composition Scheme as under Section 10(1) of CGST Act 2017 (which we have already discussed above) either as Manufacturer or trader. That’s why it is concluded that this Composition Scheme [Section 10(2a) of CGST Act 2017] is only for suppliers of service. However restaurant service supplier will not be covered in this Composition Scheme even though he is supplier of service because restaurant service supplier has specifically been covered in Composition Scheme under Section 10(1) of CGST Act 2017 (which we have already discussed above)

GST Rates applicable for Composition Scheme of service suppliers

GST Rates applicable  for this  Composition Scheme is as under

Composition tax

Applicability of all other GST provisions

All other GST provisions which are applicable to composition scheme under Section 10(1) of CGST Act 2017 shall be applicable to this composition scheme of Section 10(2A) of CGST Act 2017 also. 

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