Overview of the Scheme
The objective of composition scheme is to bring simplicity and to reduce the cost-be it compliance cost or taxes for the small taxpayers.
Small taxpayers with an aggregate turnover in a preceding financial year (P.F.Y) up to Rs. 1.50crore shall be eligible for composition levy during current financial year (C.F.Y) for aggregate turnover upto Rs. 1.50 crore in C.F.Y.
Suppliers opting for composition levy need not worry about the classification of their goods or services or both, rate of GST applicable on the same, etc. They are not required to raise any tax invoice, but simply need to issue Bill of Supply wherein no tax will be charged from the recipient.
At the end of a quarter, the registered person opting for composition levy would pay a certain specified percentage of his turnover of the quarter as tax, without availing the benefit of input tax credit.
Turnover limit for Composition Levy
Turnover limit for composition levy is Rs. 75lakh in respect of 8 of the Special Category States namely:
Manipur, Mizoram, Nagaland, Tripura, Arunachal Pradesh, Uttarakhand, Meghalaya and Sikkim
For rest of the states (including J&K, Assam and Himachal Pradesh) turnover limit is Rs. 1.5 crore.
Analysis of term “Aggregate Turnover” :
- As per Sec 2(6) of the CGST Act, 2017, “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.
- As per Sec 2(108) of the CGST Act, 2017, “taxable supply” means a supply of goods or services or both which is leviable to tax under this Act;
- As per Sec 2(47) of the CGST Act, 2017, “exempt supply” means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply;
- As per Sec 2(78) of the CGST Act, 2017, “non-taxable supply” means a supply of goods or services or both which is not leviable to tax under this Act or under the Integrated Goods and Services Tax Act;
While computing the threshold limit of Rs. 1.50 crore, inclusions in and exclusions from ‘aggregate turnover’ are as follows:
|Value of all outward Supplies||· CGST|
|· Taxable supplies (leviable of GST)||· SGST / UTGST|
|· Exempt supplies (includes supplies non-leviable to GST)||· IGST|
|· Exports||· Cess|
|· Inter-State supplies||· Value of inward supplies on which tax is payable under reverse charge.|
|of persons having the same PAN be computed on all India basis|
Explanation: For computing aggregate turnover of a person for determining eligibility to pay tax under composition scheme, the expression “aggregate turnover” shall include value of supplies made by such person from the 1st April of a FY up to the date when he becomes liable for registration under this Act, but shall not include amount of interest or discount earned on loans, advances or deposits extended.
Persons eligible for the composition levy scheme
A registered person, whose aggregate turnover in the preceding F.Y. does not exceed Rs. 1.50 crore /75 lakh, may opt to pay, in lieu of the tax payable by him u/s 9(1), an amount of tax as prescribed under rule 7 of the CGST Rules, 2017, as follows:
|Sr. No.||Category of registered persons||Rate of GST [CGST + SGST]|
|1.||Manufacturers, other than manufacturers of such goods as may be notified by the Government, (i.e. other than ice cream, pan masala and tobacco, aerated water)||(0.5% + 0.5%) = 1% of the turnover in the State or Union Territory|
|2.||Suppliers making supplies referred to in clause (b) of paragraph 6 of Schedule II [i.e. supply by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink] [Restaurant & Outdoor Catering Services]||(2.5% + 2.5%) = 5% of the turnover in the State or Union Territory|
|3.||Any other supplier eligible for composition levy under section 10 of CGST Act||(0.5% + 0.5%) = 1% of the turnover of taxable supplies of goods and services in the State or Union Territory|
Persons, not eligible to opt for composition scheme
- Supplier of services, supplying services (other than restaurant & outdoor caterers) of value in excess of Rs. 5,00,000/- or 10% of turnover in a State or Union territory in the preceding financial year, whichever is higher.
# while computing limit of 10% turnover in a State or UT, interest or discount earned on loans, deposits shall not be considered.
- Supplier of goods which are not leviable under the CGST Act/SGST Act/UTGST Act
- Supplier of inter-State outward supplies of goods
- Person supplying goods through an electronic commerce operator, who is required to collect TCS under section 52.
- Manufacturer of such goods(ice-cream, pan masala, tobacco and aerated water) as may be notified by the Government on the recommendations of the Council.
- He is a Casual Taxable Person or Non-Resident Taxable Person.
Other Points about Scheme
- All registered persons having the same Permanent Account Number (PAN) have to opt for composition scheme. If one such registered person opts for normal scheme, others become ineligible for composition scheme.
- Taxable person opting for the composition scheme shall not collect tax from the recipient on supplies made by him. It implies that a composition scheme supplier cannot issue a tax invoice.
- Taxable person opting for the composition scheme is not entitled to any credit of input tax.
Conditions and restrictions for composition levy:
- He is neither a casual taxable person nor a non-resident taxable person
- The goods held in stock by him have not been purchased from an unregistered supplier as on 01.07.2017 and where purchased, he pays the tax under reverse charge under section 9(4).
- He shall pay tax under section 9(3)/9(4) (reverse charge) of RCM liability on inward supply of goods or services or both instead of tax rates notified under composition levy.
- He was not engaged in the manufacture of goods as notified under section 10(2)(e)( ice-cream, pan masala, tobacco and aerated water), during the preceding F.Y.
- 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
- The goods held in opening stock by him on 01.07.2017 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.
Intimation of opting for composition levy
(i) Intimation by person applying for registration: Any person who is not registered and applies for
registration may give an option to pay tax under composition levy in Part B of the registration form, viz.,
FORM GST REG-01. The same shall be considered as an intimation to pay tax under Composition Levy.
Such intimation shall be considered only after the grant of registration to the applicant and his option to
pay tax under composition levy shall be effective from the date from which registration is effective.
(ii) Intimation by a registered person: A registered person who opts to pay tax under composition levy
scheme shall electronically file an intimation in prescribed form on the Common Portal [www.gst.gov.in],
prior to the commencement of the FY for which said option is exercised.
He shall also furnish the statement in prescribed form in accordance with the provisions of rule 44(4) of
CGST Rules, 2017 within 60 days from the commencement of the relevant FY. Any intimation in respect of any place of business in a State/UT shall be deemed to be an intimation in respect of all other places of business registered on the same PAN.
The option to pay tax under composition levy shall be effective from the beginning of the F.Y
Validity of composition levy
- The option exercised by a registered person to pay amount under composition levy shall remain valid so long as he satisfies all the conditions mentioned in the said section and these rules.
· The option to pay tax under composition scheme lapses from the day on which his aggregate turnover during the F.Y. exceeds the specified limit (Rs. 1.50 crore/Rs. 75 lakh).
· Such person is required to pay normal tax under section 9(1) from the day he ceases to satisfy any of the conditions prescribed for composition levy. He shall issue tax invoice for every taxable supply made thereafter.
· Further, he is required to file an intimation for withdrawal from the scheme in prescribed form within 7days of the occurrence of such event.
· However, such person shall be allowed to avail the input tax credit in respect of the stock of inputs and inputs contained in semi-finished or finished goods held in stock by him and on capital goods held by him on the date of withdrawal and furnish a statement, within 30 days of withdrawal of the option, containing the details of such stock held in prescribed form on the common portal.
Imposition of penalty in case of irregular availment of the composition scheme
If a taxable person has paid tax under the composition scheme though he was not eligible for the scheme, the person would be liable to penalty and the provisions of section 73 or 74 of the CGST Act shall be applicable for determination of tax and penalty.
Further, where the proper officer has reasons to believe that the registered person was not eligible to pay tax under composition levy or has contravened the provisions of the Act/provisions of this Chapter, he may issue a show cause notice to such person in prescribed form.
Upon receipt of the reply to such show cause notice from the registered person in prescribed form, the proper officer shall issue an order in prescribed form within 30 days of the receipt of such reply, either accepting there reply, or denying the option to pay tax under composition levy from the date of the option or from the date of the event concerning such contravention, as the case may be.
Effective date of Withdrawal of Composition Scheme
In a case where the taxpayer has sought withdrawal from the composition scheme, the effective date shall be the date indicated by him in his intimation/application filed, but such date may not be prior to the commencement of the financial year in which such intimation/application for withdrawal is being filed. If at any stage it is found that he has contravened any of the provisions of the CGST Act or the CGST Rules, action may be initiated for recovery of tax, interest and penalty.
In case of denial of option by the tax authorities, the effective date of such denial shall be from a date, including any retrospective date as may be determined by tax authorities, but shall not be prior to the date of contravention of the provisions of the CGST Act or the CGST Rules. In such cases, as provided under subsection (5) of section 10 of the CGST Act, the proceedings would have to be initiated under the provisions of section 73 or section 74 of the CGST Act for determination of tax, interest and penalty for the period starting from the date of contravention of provisions till the date of issue of order.
It is also clarified that the registered person shall be liable to pay tax under section 9 of the CGST Act from the date of issue of the order. Provisions of section 18(1)(c) of the CGST Act shall apply for claiming credit on inputs held in stock, inputs contained in semi-finished or finished goods held in stock and on capital goods on the date immediately preceding the date of issue of the order.
Composition Scheme for Supplier of Services [Section 10(2A)]
|Description of Supply||Rate of GST (CGST + SGST)|
|First supplies of goods or services or both upto an
aggregate turnover of fifty lakh rupees made on or
after the 1st day of April in any financial year, by a
|3% + 3% = 6% of value of all outward supplies of
goods or services or both notwithstanding any other
notification issued u/s 9(1) or u/s 11 of the CGST
Explanation: For computing aggregate turnover of a person for determining eligibility to pay tax under this section, the expression “aggregate turnover” shall include value of supplies made by such person from the 1st April of a FY up to the date when he becomes liable for registration under this Act, but shall not include amount of interest or discount earned on loans, advances or deposits extended.
Persons eligible for composition levy [Sec 10(2A)]: A registered person who is not eligible to opt for composition levy scheme u/s 10(1) or 10(2), can opt for composition levy scheme under Section 10(2A), if his aggregate turnover in preceding financial year did not exceed Rs.50 lacs. Such assessee may opt to pay, in lieu of the tax payable by him u/s 9(1), an amount of tax calculated at such rate as may be prescribed, but not exceeding 3% (CGST) of the turnover in State or turnover in U.T
An assessee can opt for composition levy under section 10(2A), if-
- His aggregate turnover in the preceding financial year was fifty lakh rupees or below
- He is not eligible to pay tax under section 10(1) of said Act
- He is not engaged in making any supply of goods or services which are not leviable under this Act
- He is not engaged in inter-State outward supplies of goods or services
- He is not engaged in making any supply of goods or services through an electronic commerce operator, who is required to collect TCS under section 52.
- He is neither Casual Taxable Person nor Non-Resident Taxable Person and
- He is not a Manufacturer of such goods(ice-cream, pan masala, tobacco and aerated water) or supplier of such services as may be notified by the Government on the recommendations of the Council.