Composition Scheme

SECTION : Levy of and Exemption from Tax

DESCRIPTION
  • Lesson Objectives

    On completion of this lesson, you will be able to understand:

    ·         Section 10 – Composition Levy

    ·          Effective Date for Composition Levy

    ·         Conditions and Restrictions

    ·          Rate of Tax of the Composition Levy

     

    Please go through the Second Video of the Chapter 2.

    Composition Scheme

    The composition scheme is an option available to the taxable person. This scheme would be available only to certain eligible persons.

    In the normal scenario, tax liability is calculated using the below formula.

    Tax Liability = Output Tax – Input Tax

                The Person opting to pay tax under the composition scheme needs only to ascertain the aggregate value of outward taxable supplies, and compute the tax thereon at a fixed rate. Actual Tax rate is not applicable for calculation.

                                Tax Liability under composition Scheme= Turnover x Fixed Rate

    Eligibility

    Registered Persons having an ‘aggregate turnover’ across all states under the same PAN, including exempt supplies, supplies specified under schedule I etc. does not exceed the prescribed limit in the preceding financial year will be eligible to opt for the composition scheme.

    The aggregate turnover should not exceed the prescribed limit of Rs. 1 crore. It is Rs. 75 lacs in case of Special Category States being Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Himachal Pradesh.

    ·        The aggregate turnover of the registered person should not exceed the said prescribed limit during the financial year.

    ·        The aggregate turnover does not include any interest income, which is earned by way of supply of services such as extending deposits etc.

     

    Persons to whom Composition Scheme does not apply

    The below Taxable Persons cannot opt for Composition Scheme:

    a)     Engaged in any supply of goods through an electronic commerce operator. There is no restriction on goods supplied portal owned and operated by the same person. This clause will be applicable only from the date of notification of TCS.

     

    b)    Engaged in supply of goods which are not leviable to tax under GST. Non-taxable goods such as alcoholic liquor for human consumption, petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel.

     

    c)     Engaged in supply of services. A trader opting for composition scheme will not be entitled to provide any after-sales support services.

     

    d)    The Registered Person cannot affect inter-state stock transfers. It includes transfer to its own establishments located outside the state. The condition is applicable to taxable and exempt supplies also.

     

    Persons Excluded

    The Registered Person must not be

    a)     A Manufacturer of notified goods i.e. ice cream, pan masala, tobacco etc. It is applicable for the year for which he opted as well as the preceding financial year. There is no restriction on trading of such goods.

    b)    A casual taxable person.

    c)     A non-resident taxable person.

     

    Opting for Composition Scheme

    A Person who obtains registration and opts for the composition scheme at the time of applying for registration can opt for composition scheme. He should apply for composition scheme in Part B of Form GST REG-1. The option to pay tax under composition scheme will be effective from the date of Registration.

    Switching over to the Composition Scheme

    The scheme cannot be opted during the middle of the financial year. A person is required to file intimation before the commencement of the financial year for which he opts to pay under the scheme.

     

     

    The person is required to file a statement containing details of stock and inward supply of goods received from un-registered persons, held in stock, on the day immediately preceding the date.

    Important Points

    1.     Composition scheme would become applicable for all the business verticals/registrations which are separately held by the person with same PAN. One Person cannot opt for composition scheme only for one vertical.

     

    A Company has the following businesses separately registered.

    -         Sale of mobile devices (Registered in Kerala)

    -         Franchisee of branded restaurant (Registered in Goa)

    The scheme is applicable for the said 2 units. The Company cannot opt for composition scheme for the Registration in Kerala and to opt to pay taxes under the regular scheme for the registration in Goa.

     

    2.      Composition scheme is applicable subject to the condition that the taxable person does not affect interstate supplies.

     

    3.      He is not eligible to claim input tax credit.

     

    4.      Not entitled to collect tax.

     

    5.      Composition scheme supplier cannot issue a tax invoice because he is restricted from collecting tax.

     

    6.      Customer who buys goods from taxable person who is under composition scheme is not eligible for composition input tax credit because a composition scheme supplier cannot issue a tax invoice.

     

    7.      He shall be liable to make payment at the rate applicable on the supply in respect of every inward supply liable to tax under the reverse charge mechanism.

     

    8.      Every notice or sign board in every registered place of business, displayed at a prominent place, should carry the words ‘composition taxable person’.

     

    9.      Every bill of supply issued by the composition suppliers shall carry the declaration “Composition Taxable Person, not eligible to collect tax on supplies” on the top of the bill.

     

    Tax Rates under Composition Scheme

    The rates prescribed under the composition scheme are as below.

    SI No.

    Person

    CGST Rate

    SGST Rate

    1

    Manufacturer

    0.5%

    0.5%

    2

    Food / Restaurant Services

    2.5%

    2.5%

    3

    Other Suppliers i.e. Traders, Agents for Supply of Goods etc.

    0.5%

    0.5%

     

    Penal consequences if a taxable person violates the condition.

    Taxable person who was not eligible for the composition scheme would be liable to pay tax, interest and in addition he shall also be liable to a penalty equivalent to the amount of tax payable.

     


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