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AN OVERVIEW ON COMPOSITION SCHEME

  • by CA. Ena Kansal

 (The author is a Practicing Chartered Accountant and a renowned Trainer with an exposure in Direct and Indirect Taxes. She has delivered several presentations at ICAI, ICSI and other professional forums on topics pertaining to GST. Author can be reached at gst@apurvkansal.co.in or 8109825451)

 (Only for Private Circulation)

Composition scheme is a convenient way for the small taxpayers in order to escape from too many GST formalities and pay the tax at a fixed rate based on their business turnover.

Person(s) who were granted registration under GST on provisional basis and who want to opt for composition scheme, shall file an intimation in FORM GST CMP-01 on or before 21st July, 2017.

Key Features

  • Eligibility: Aggregate Turnover must be below Rs. 75 lakhs ( in case of special category states namely Arunachal Pradesh, Assam, Manipur, Mizoram, Sikkim, Himachal Pradesh, Meghalaya, Nagaland, Tripura the threshold limit is Rs. 50 lakhs )
  • Tax rate:  Fixed tax rate on the total sales turnover
  • Input Tax Credit:  Not eligible for Input Tax Credit
  • Place of supply:  Applies only to the Intra-State supplies
  • Return:  No monthly filing, only Quarterly returns
  • Billing:  Issues Bill of Supply & not tax invoice
  • The option to pay tax under composition scheme will have to be exercised for all States.
  • The option to pay tax under composition levy is exercised prior to the commencement of the relevant financial year.

Rates of taxes under Composition Scheme

 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;
  • Supplier who has purchased any goods or servcies from unregistered supplier unless he has paid GST on such goods or services on 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
  • A manufacturer of following notified goods: Ice cream and other edible ice, whether or not containing cocoa , Pan masala , Tobacco and manufactured tobacco substitutes.

Note: There is no restriction on interstate purchases by persons opting for the composition scheme.

 Merits of the Scheme

  • Limited Compliance:Lesser compliance w.r.t. furnishing of returns, maintenance of books of records, issuance of invoices more focus on business.
  • Limited Tax Liability: Person taxed under Composite Scheme will be liable to pay tax at a at a prescribed percentage of his turnover every quarter, instead of paying tax at normal rate.
  • High Liquidity:Unlike normal tax payers, tax payers under Composite Scheme will be liable to pay taxes at a lower rate resulting in lesser chunk on his working capital.

 Demerits of the Scheme

  • Limited Territory for Business: A taxpayer registered under the composition scheme is barred from carrying out inter-state transactions and cannot affect import-export of goods and services.
  • No Credit of Input Tax: The credit of input tax paid on the purchases of inputs from a normal tax payer will not be allowed. The buyer of goods supplier by scheme holder will also not enjoy input tax credit resulting in price distortion, cascading, loss of business to scheme holders.
  • No Collection of Tax: Though the rate of tax for a scheme holder is lower the burden of such tax is kept on the taxpayer himself, leading to higher cost of sales.
  • Penal Provision: If the taxpayer who has previously been given registration under composition scheme is found to be not eligible to the composition scheme or if the permission granted earlier was incorrectly granted, then such taxpayer will be liable to pay the differential tax along with a penalty
  • Not applicable to the supplier supplying goods through E-commerce.

Return Filing Process

It is only a simplified quarterly return in FORM GSTR 4 for which the taxpayer only requires indicating:

  • Total consolidated value of the supplies. Invoice-wise detail is not to be disclosed.
  • Tax paid at the composition rate.
  • Invoice level purchase information for the purchases made from normal taxpayers, which will be auto-populated in GSTR 4Afrom supply invoices uploaded by the counter party normal registered taxpayers.

Process on intimation under composition scheme

A person who are registered under VAT Act, Service Tax, Central Excise etc, are being granted registration under GST on provisional basis and who opts for composition scheme, shall file an intimation in FORM GST CMP-01 on or before 21st July, 2017.

 Filling of Form GST CMP- 03

A person shall also file FORM GST CMP- 03 within 60 days of exercise of option:

  • Details of stock.
  • Inward supply of goods received from unregistered persons held by him on the date preceding the day of exercise of option.

Invoicing under GST

  • The person who is registered as a composition taxpayer has to issue bill of supply in lieu of tax invoice.
  • At the top of the bill of supply issued by him, mention the words- “not eligible to collect tax on supplies”because person registered as the composite taxpayer is not eligible to collect tax on the supplies from his buyer rather tax is paid by the composite taxpayer himself at the special rates decided for the composition dealers.
  • Mentioning on every Notice or the sign board displayed- “composition taxable person”


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