GST COMPOSITION SCHEME

 (A). What is *composition levy under GST?*

 i. The composition levy is an alternative method of levy of tax designed for small taxpayers whose turnover is up to *Rs. 75 lakhs* ( Rs. 50 lakhs in case of few States like for Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, and Himachal Pradesh). The objective of composition scheme is to bring simplicity and to reduce the compliance cost for the small taxpayers.

 ii. To make compliance easier for small businesses, many state governments have provisions in their VAT system for payment of a composition levy by small businesses. This ensures greater compliance without the need for maintaining copious records. Although such a system is missing in Service Tax laws.

 iii. 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.

 iv. Moreover, it is *optional* and the eligible person opting to pay tax under this scheme can pay tax at a *prescribed percentage of his turnover every quarter, instead of paying tax at normal rate.

 (B). Who are the persons *not eligible for composition scheme?*

 Following persons are *not allowed to opt* for the composition scheme:
a) a casual taxable person;
b) Service providers other than restaurants
c) Any business that makes *inter-state outward supplies*
d) Any business registered on an e-commerce platform
e) Manufacturers of ice cream, edible ice, pan masala, tobacco, and tobacco substitutes.
f) A person registering as a non-resident taxable person. This is someone who wants to do business for a short period and is based out of India with no office in India. Registration is valid for 90 days.
g) A person registering as a casual taxable person. This is someone who seeks a temporary registration in a state where he has no office. Registration is valid for 90 days.

 *Note:*
h) Unfortunately, composition scheme is not available to *service providers* other than restaurants. Service providers must register as regular taxpayers if their turnover exceeds Rs 20 lakh. They must mandatorily register if they do inter-state supplies or are listed on an e-commerce website. If one of this is true, the turnover threshold of Rs 20 lakh does not apply.
i) There is no restriction on procuring goods from inter-state suppliers by persons opting for the composition scheme

 (C). *Tax Composition*

PARTICULARS  *CGST Rate (%)*

Traders  *0.05%*
Manufacturers  *1.00%*
Restaurant businesses *2.50%*

 (D). When will a person opting for composition levy pay tax?

 A person opting for composition levy will have to pay tax on *quarterly basis before 18th of the month* succeeding the quarter during which the supplies were made.

 (E). A person availing composition scheme during a financial year *crosses the turnover of Rs.75 lakhs/50 lakhs* during the course of the year i.e. say he crosses the turnover of Rs.75 lakhs/50 lakhs in December? Will he be allowed to pay tax under composition scheme for the remainder of the year i.e. till 31st March?

 i. No. The option to pay tax under composition scheme lapses from the day on which his aggregate turnover during the financial year exceeds the specified limit (Rs. 75 lakhs / Rs. 50 lakhs).
 ii. He is required to file an intimation for withdrawal from the scheme in FORM GST CMP-04 within seven days from the day on which the threshold limit has been crossed.
 iii. 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 containing the details of such stock held in FORM GST ITC-01 on the common portal.

 (F). How will the *aggregate turnover* be computed for the purpose of composition?

 Aggregate turnover will be computed on the basis of turnover on an all India basis and will include value of all taxable supplies, exempt supplies and exports made by all persons with same PAN, but would exclude inward supplies under reverse charge as well as central, State/Union Territory and Integrated taxes and cess.

 (G). Can a person who has opted to pay tax under the composition scheme avail *Input Tax Credit on his inward supplies?*

 *No*. A taxable person opting to pay tax under the composition scheme is out of the credit chain. He cannot take credit on his input supplies. When he switch over from composition scheme to normal scheme, eligible credit on the date of transition would be allowed

 (H). Can a registered person, who purchases goods from a taxable person paying tax under the composition scheme, avail *credit of tax paid* on purchases made from the composition dealer?

 *No* as the composition dealer cannot collect tax paid by him on outward supplies from his customers, the registered person making purchases from a taxable person paying tax under the composition scheme cannot avail credit.

 (I). Can a person paying tax under the composition scheme issue a *tax invoice* under GST?

 *No.* He can issue a bill of supply in lieu of tax invoice.

 (J). In case a person has registration in *multiple states?* Can he opt for payment of tax under composition levy only in one state and not in other state?

 The option to pay tax under composition scheme will have to be exercised for all States.

 (K). What are the *other compliances* which a provisionally registered person opting to pay tax under the composition levy need to make?

 Such person is required to 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 to pay tax under the composition scheme, electronically, in FORM GST CMP-03, on the common portal, either directly or through a Facilitation Centre notified by the Commissioner, within a period of sixty 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.

 (L). Can a person making application for *fresh registration* under GST opt for composition levy at the time of making application for registration?

 *Yes.* Such persons can give the option to pay tax under the composition scheme in Part B of FORM GST REG-01. This will be considered as an intimation to pay tax under the composition scheme.

 (M).Can the option to pay tax under composition levy be exercised at *any time of the year?*

 *No.* The option is required to be given electronically in FORM GST CMP-02, prior to the commencement of the relevant financial year.

 (N). Can a person who has *already obtained registration, opt for payment under composition levy? If so, how?*

 *Yes.* Such persons need to give intimation electronically in Form GST CMP-02 but from beginning of the financial year only.

 (O). Are *monthly returns* required to be filed by the person opting to pay tax under the composition scheme?

 i. *No.* Such persons need to electronically file quarterly returns in Form GSTR-4 on the GSTN common portal by the 18th of the month succeeding the *quarter.*
 ii. For example return in respect of supplies made during July, 2017 to September, 2017 is required to be filed by 18th October, 2017.

 (P). What are the basic information that need to be furnished in GSTR-4?

 It would contain details of the turnover in the State or Union territory, inward supplies of goods or services or both and tax payable.

 (Q). A person opting to pay tax under the composition scheme receives inputs/input services from an unregistered person. Will the composition taxpayer have to pay GST under reverse charge? If yes, in what manner?

 i. Yes. Tax will have to be paid on such supplies by the composition taxpayer under reverse charge mechanism.
 ii. The tax can be paid by the 18th day of the month succeeding the quarter in which such supplies were received.
 iii. The information relating to such supplies should be shown by the composition taxpayer in Table 4 of return in FORM GSTR -4.

 (R). What is the form in which an intimation for payment of tax under composition scheme needs to be made by the taxable person?

 The intimation is to be filed electronically in FORM GST CMP- 01 or FORM GST CMP- 02.

 (S). Are monthly returns required to be filed by a trader not opting to pay tax under the composition scheme?

 i. Traders not opting to pay tax under the composition scheme need to file returns on a monthly basis.
 ii. Form GSTR-1 is to be filled for outward supplies made by the trader (made in the month for which return is being filed) by the 10th of the next month.
 iii. Other parts of the return Form GSTR-2 and Form GSTR-3 are auto-populated and only needs to be verified and submitted by the 15th and the 20th of the next month respectively.

 *HERE ARE SUMMARY OF THE SCHEME:*

 *Eligibility*
Not everyone is eligible to enroll under this scheme. It is meant for taxpayers whose aggregate turnover does not exceed Rs. 75 lakh threshold in a Financial Year.

 *Not eligible for Input Tax Credit*
As per section 16, those goods and services on which Composition Tax has been paid (under section 8) do not qualify for Input Tax Credit.

 *Applies to Intra-state supplies*
Local suppliers, i.e., those who supply within a state can only take advantage of this scheme. Inter-state suppliers will come under regular GST laws.

 *Needs voluntary application*
a. Taxpayers need to make voluntary registration every year for getting the benefits of GST Composition Scheme.
However, if the taxpayer crosses the minimum turnover limit of Rs. 75 lakh then he will be transferred to regular scheme.
b. Taxpayers who are already a part of VAT Composition Scheme also need to voluntarily register for this scheme.

 *Quarterly returns*
Instead of filing 3-4 returns monthly, taxpayers registered under this scheme will be required to file returns once every quarter.

 *Bill of supply not tax invoice*
Unlike regular scheme where a taxpayer needs to present tax invoice to the tax authorities, taxpayers registered under this scheme need to present bill of supply.

 *Penalty*
If a taxable person is found not eligible for this scheme then the tax authorities can impose a penalty equal to the amount of tax on such person along with his tax liability. So utmost care needs to be taken when opting for this scheme and paying taxes.