New Composition Scheme including for service providers w.e.f 01.04.2019

Composition scheme under GST law is for small taxpayers. The objective of the scheme is to bring simplicity and provide relief to small taxpayers so that they need not be burdened with the compliance of various provisions under the GST Laws. Lesser number of returns are required to filed and detailed maintenance of records not required are the benefits of the scheme. It is an optional scheme.

Who can opt for composition scheme?

Section 10(1) of Central Goods and Services Tax Act,2017 provides for the threshold limit for opting Composition Levy.

Inclusions & Exclusions for aggregate Turnover calculation

Initially scheme was for supplier of goods only and limit was Rs.50 lakhs (In case of Special category States limit was Rs. 25 Lakhs.). Government via Notification No. 8/2017 CT, dt27.06.2017 increased limit to Rs. 75 Lakhs and in case of Special category States limit increased to Rs. 50 Lakhs. It was further increased to Rs. 1 Crore via Notification No.  46/2017CT dt 13.10.2017.  

Who are ineligible for composition scheme?

Section 10(2) of CGST,2017 and Rule 5 of Composition Rules of CGST,2017

  • Supplier of goods and/or services which are not leviable to tax under GST.
  • Supplier of inter-state outward supplies .
  • Supplier of goods through an electronic commerce operator
  • A casual taxable person or a non resident taxable person
  • Manufacturer of
    • Ice cream and other edible ice
    • Pan masala
    • Tobacc

Conditions & other terms under composition scheme(Section 10(2) and Rule5)

  • No input Tax Credit can be claimed
  • Has to pay tax at normal rates under Reverse Charge Mechanism
  • Multiple registrations with same PAN has to be considered collectively for composition levy.
  •  A manufacturer or trader can also supply services to an extent of 10% of turnover, or Rs.5 lakhs, whichever is higher.
  • Has to mention ‘COMPOSITION TAXABLE PERSON’ on the:
    • Invoice
    • Every notice
    • Signboard displayed at prominent place of business.

Intimation of opting the scheme (Rule 3 & 4)

For businesses that are registering for the first time

While filing registration FORM GST REG-01, in Part B of the form select “Registration as composite business owner” option.

For businesses already registered under GST

A registered person who opts to pay tax under composition levy scheme shall electronically file an intimation in GST CMP-02, prior to the commencement of the FY for which said option is to be exercised.

He is required to pay an amount equal to its available input tax credit and file form GST ITC-03 within 60 days from the start of FY.

Details of stock to be furnished: Any person who  files  such intimation shall furnish the details of stock, including the inward supply of goods received from unregistered persons,held by him on the day preceding the date from which he opts  for composition levy, electronically, within a period of 90 days from the date on which the option for composition levy is exercised or within such further period as may be  extended by the Commissioner in this behalf.

The option to pay tax under composition levy shall be effective from the beginning of the FY.

Applicable Rates of Tax? (Section 10(1) and Rule7)

A registered person who opt to pay tax under composition scheme are required to pay tax at rates mention below:-

Registered PersonTotal Tax RateCGSTSGST/UTGST
Manufacturer or Trader1% of turnover*0.05%0.05%
Restaurant other than serving alcoholic liquor5% of turnover*2.5%2.5%
Other Service providers6% of turnover**3%3%

Validity and Withdrawal of composition levy [Section 10(3) read with rule 6]

  • 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 under composition scheme.
  • The option to pay tax under composition scheme lapses from the day on which his aggregate turnover during the FY exceeds the specified limits. 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.He is required to file intimation for withdrawal from the scheme in Form GST CMP-04 within 7 days of the occurrence of such event.
  • He is required to file Details of inputs in stocks, semi-finished goods, finished goods and capital goods in Form GST ITC-01, within 30 days of withdrawal of the option, and allowed to avail the ITC 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.


No Collection of Tax (SECTION 10(4)

Composition supplier cannot collect tax from the recipient of the supplies. He is liable to pay GST out of his own pocket. Payment of GST = GST on supplies made + GST payable under RCM.

Bill of Supply/Invoice

The registered person cannot issue tax invoice. “Composition taxable person, not eligible to collect tax on supplies” should be mentioned on every invoice.

Returns

RETURNDUE DATE
GSTR-4 (Quarterly Return)18th  of the following quarter
GSTR-9A (Annual Return)31st  Dec of the next financial year*

*For the FY 2017-18, due date extended upto 30th June, 2019.

Benefits of Composition Scheme

  • Lesser Compliance: Composition taxpayer is required to file lesser number of returns as compare to normal tax payer.  He is not required to maintain detailed records.
  • Lower Tax Rate: Composition scheme provides facility to pay tax at lower rates i.e. 1%,5% and 6%.
  • Simple  calculation of tax based on turnover: Under Composition Scheme Taxpayer calculates tax as a percentage of turnover.
  • Higher Liquidity: Composition taxpayer’s working capital doesn’t blocks in ITC and pays tax at lower rates. So more cash will be available with him.

Drawback of Composition Scheme

  • No ITC available [Section 10(4)]: Composition taxpayer not allowed to claim any input tax credit on inputs.
  • Payment of GST from own pocket: Composition taxpayer cannot collect tax from the recipients.   It has to pay tax from his own pocket. It is merely cost to be born for less compliances offered by GST Act.

Other links;

*Government via Notification No.14/2019CT dt.7.03.2019 increased limits and will be effective from 1st April2019. http://www.cbic.gov.in/resources//htdocs-cbec/gst/notfctn-14-central-tax-english-2019.pdf

**Via Notification No 2/2019CT(Rate) dt 7.03.2019, w.e.f 1stApril,2019. http://www.cbic.gov.in/resources//htdocs-cbec/gst/notfctn-2-2019-cgst-rate-english.pdf

*Notification No 8/2017dt27.06.2017 as amended by notification1/2018 dt1.1.2018 further amended by Notification no. 5/2019CT dt 29.01.2019

**Via Notification No 2/2019CT(Rate) dt 7.03.2019, w.e.f 1st April2019.

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Task List under GST before 31.3.2019


      Task list to be accomplished  before 31.3.2019 under GST

  1. LUT Application for next financial year 2019-20
  2. Application to switch from Composition scheme from regular tax payer
  3. TRAN-1: where registered persons could not submit GST TRAN-1 as per earlier deadline due to technical issues at GST Portal
  4. File GSTR-3B for the period from July, 2017 to September, 2018 without any late Fees, if not filed earlier.
  5. Last Chance for taking Input Tax credit of Invoices pertaining to FY 2017-18 which were Missed for claiming ITC, calculation to be completed upto 31.3.2019, because it could be claimed upto due date for filing GSTR-3B for the month of March, 2019. Furthermore it is subject to condition that must be reflected in 2A, so you have to follow up with your suppliers for amending/uploading invoices issued in your entity name for the period from 01.07.2018 to 31.3.2018, in their GSTR-1.
  6. With reference to point no. 5, GSTR-1 related amendment for the FY 2017-18,
  7. If anyone wants to change the series for invoices for FY 19-20, structure to be decided in advance.
  8. GSTR-3B related amendments of any previous months
  9. ITC-04 for the quarters falling between July, 2017 to December, 2018
  10. TDS return to be filed by TDS deductor from Oct, 2018 to Feb, 2019, so that counter party can avail the TDS credit.
  11. GSTR-4 for the period from July, 2017 to September, 2018 without late fees, if filed after 22.12.18
  12. Last date for filing GSTR-1 & GSTR-3B for newly migrated tax payers for the period from July, 2017 to February, 2019