Composition Scheme under the GST Rules – Explained

Composition scheme under GST is a blessing in disguise for small dealers because under normal circumstances there are 3 monthly returns to be filed along with other compliances.
Hence, it is for the benefit of small dealers up to the turnover of 50 lakh to avail the scheme of composition levy so that they just need to pay the fixed percentage of their revenue as a tax to the government.

Let us understand it in detail:

WHO CAN AVAIL THE COMPOSITION SCHEME?

As per section 10 of CGST, act 2017 every person whose aggregate turnover in the preceding financial year did not exceed Rs.50 lakh, may opt for this scheme.
Further, the composition scheme is also subject to following guidelines to be eligible for composition scheme:

• He is not in engaged in supply of services other than supplying 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 (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration.
   
• He is not engaged in making any supply inter-state outward supplies of goods.
   
• He is not engaged in making any supply of goods which are not leviable to tax under the act.
   
• He is not engaged in making any supply of goods through an electronic commerce operator who is required to collect tax at source.
   
• He should not be a manufacturer of goods as notified by the government.
   

GST TAX RATE FOR COMPOSITION SCHEME

The person eligible to composition supply shall pay tax on the basis of the following table:

S No.	Category of Registered Person	Rate of tax
1.	Manufacturers, other than manufacturers of such goods notified by the government	1%
2.	Supplying 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 (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration	2.5%
3.	Any other supply	.50%

PROCEDURE TO OPT FOR COMPOSITION SCHEME IN GST

Composition scheme is not automatic and hence, you must adhere to the following steps so that you can complete all your responsibility correctly:

#Step No.1 – File the Intimation (Provisionally registered):
Any person who are provisionally registered and wants to apply for the composition scheme, should file intimation in Form GST CMP – 01 duly signed on the common portal within 30 days.
Provisionally registered person means a person who are already registered under VAT, excise, services tax and has got themselves enrolled under GST.

File the Intimation (Normally registered): Any registered person under GST who wants to pay tax under composition scheme shall file the intimation in FORM GST CMP – 02 before the commencement of financial year for which composition option is exercised.

#Step 2 – File GST ITC 3:
Under this stage, the person shall furnish the FORM GST ITC 3 within 60 days from the commencement of the relevant financial year.

#Step 3 – Furnish the details of stock:
Any person who opted for composition scheme shall furnish the details of stock, including the inward supply of goods received from the unregistered persons held by him in form GST CMP – 03 within 60 days of the date on which option for composition scheme is exercised.

Important point: Any intimation filed above in respect of any place of business in any state or Union territory shall be deemed to be intimation in respect of all other places of business registered with same PAN.

IMPORTANT CONDITIONS AND RESTRICTIONS FOR AVAILING COMPOSITION LEVY UNDER GST

Every person who has opted to pay tax under composition scheme shall comply with the following conditions:

1. He should not be a casual taxable person now a Non-resident taxable person.

• Casual taxable person means a person who occasionally undertakes the transaction involving the supply of goods and services.
• Non-resident taxable person means a person who occasionally undertakes the transaction involving the supply of goods and services. but who has no fixed place of business or residence in India

2. No stock in hand which is purchased in the course of interstate trade or imported:

The goods held in stock by him 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 on the date once GST is notified.
In other words, the supplier should not have any stock purchased from any other state or from any other country on the day when GST is notified.

3. No dealing with an unregistered supplier under GST:

The person should not buy goods from any unregistered supplier or if he purchases, then he shall be liable to pay tax under reverse charge. Further, this tax is different from the composition scheme.
Reverse charge means when the recipient of goods/services is liable to pay tax on the same.

4. He should not be a manufacturer of goods as notified by the Government of India.

5. Edit the Tax invoice:

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.

6. A requirement of sign board to be placed at all places of business:

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.

7. He shall pay tax on inputs and shall not claim the ITC

While he has to purchase goods from the registered dealer and he shall not be liable to claim the ITC on the said inputs.

VALIDITY OF COMPOSITION LEVY UNDER GST

This is also one of the most important aspects of composition scheme because if you have opted for composition scheme under GST, then you should aware of its validity as well.

Here are the following points:

• Perpetual Validity: The option exercised by a registered person to pay tax under composition scheme shall remain valid as long as he satisfies all the conditions mentioned above.
  The person shall cease to pay under composition scheme if he does not adhere to the rules and regulations and will be liable to pay tax and file return normally.
   
• Non-Compliance with conditions:
  Also, he shall have to file intimation in Form GST CMP – 04 within seven days of the occurrence of such event.
   
• Voluntarily Withdrawal: If a person wants to withdraw himself from the scheme, then he shall file an application in form GST CMP – 04.
   
• Withdrawal by Government: If the officer thinks that you are not eligible for this scheme, then he may issue a notice to such person in form GST CMP – 05 to show cause within 15 days of the receipt of such notice.
   
• File Statement of Stock for ITC: If a person has opted out of the composition scheme then he shall file a statement of stock containing the details in FORM GST ITC – 01 within 30 days from the date from which the option is opted out.

Conclusion

We have read out the latest rules on composition scheme released by the government of India. In case you have any query, please email us at info@hubco.in.