Composition Scheme - Blessing for Small Businesses

Composition Scheme Under GST

This blog will provide you the complete details about Composition Levy, also known as composition Scheme under GST (Goods and Service Tax). It is a relaxed scheme under GST Regime in which small business can find an ease in terms of compliance. There are simple quarterly and annual returns, no requirement of audit, no ITC (input tax credit) compliance, low tax rates etc.

Initially Composition levy was basically for good's manufacturers & traders and there was only one exception that was Restaurants Service (in legal term defined as; supply of food or any other article for human consumption or drinks excluding alcoholic liquor). But now it is available to Service-Providers w.e.f 1st April 2019. 

The details under this blog are derived from Sec.10 of GST Act read with composition rules and various notifications.

 

Benefits of Composition Levy

Composition Levy is a easy compliance scheme under GST basically drafted in consideration to small business persons. There are many benefits of Composition levy and few of them are mentioned below :

1) Simple return - 4 quarterly return (CMP 08) and 1 annual return (GST 9A)

2) Less burden to maintain various books & records.

3) Low rate of Tax

4) No bothering of ITC (Input Tax Credit).

5) Easy to operate business without many employees. 

6) No need to collect any tax from purchaser or Recipient.

7) No need for GST Audit.

 

Restrictions under Composition Levy

1) Cannot Avail Input Tax Credit (ITC).

2) Cannot provide/forward tax credit to purchaser or Recipient.

3) Cannot issue Invoice (details below).

4) Non compliance will make them ineligible for the scheme. 

Return filing

Under composition levy the return filing compliance is very simple, & less in number. your have to file quarterly return in "CMP 08" by '18th of the month following the quarter" and an annual return in "GSTR 9A/GSTR 4" by '31st of March of the Assessment Year (A.Y.) following the Financial Year (F.Y.)'.

Currently for F.Y. 2018-19 annual return available  is GSTR 9A & GSTR 4 is currently not available.

Rate of Tax

Service along with goods

As per Sec.10 of GST Act, a person who opt composition scheme may provide service of 10% of its turnover or ₹ 5,00,000 (Rupees Five Lakhs) which ever is higher. Exceeding this limit will make the person ineligible for this scheme and his transition will to done to the regular scheme/levy forthwith.

• Rate of tax will same a manufacturers & traders. 

Eligibility  

Now Composition levy is available to trader, manufacturer and service providers (w.e.f 01/04/2019). A person registered under this scheme cannot issue invoice, in its place has issue "Bill of Supply". But for service providers there are certain additional conditions, so to make it more understandable we will discussing them one by one.

 

For Traders and Manufactures

As per the Notification No. 14/2019 - Central Tax dt. 7th March 2019 of CBIC, a person whose aggregate turnover in the preceding financial year (F.Y.) did not exceed ₹ 1,50,00,000 (Rupees One Crore Fifty Lakhs) may opt for composition scheme. The limit for the following states is ₹ 75,00,000 (Rupees Seventy Fifty Lakhs):

 (i)     Arunachal Pradesh

 (ii)    Manipur

 (iii)   Meghalaya

 (IV)   Mizoram

 (v)    Nagaland

 (vi)   Sikkim

 (vii)  Tripura

 (Viii) Uttarakhand

Here, for the calculation of "Aggregate Turnover" the meaning shall be driven from Sec.2 Clause (6) of the act. 

Aggregate Turnover includes :
1) All taxable sales/supplies.
2) Excluding RCM (Reverse charge mechanism) purchases/inwards.
3) Exempt sales/supplies.

4) Exports.

5) Inter state sales/supplies. 

The following are the conditions :-

1.   He is not a service provider.

2.   He is not supplying goods which are not taxable under GST.

3.   He is not carrying out inter-state sales/supplies.

4.  He is not supplying goods though E-Commerce Operates like Amazon, Flipkart etc., required to Collect TCS (tax collected at source).

5.   He is not a manufacturer of goods as notified by council.

6.   He is not a casual taxable person or a non-resident person.

7.  He has not held stock from : Inter-state purchase, imports, Other state branches, Purchases from Unregistered person or RCM.

8.   He is not a ISD (Input Service Distributor).

9.   He is not a Tax Collector/Tax Deductor. 

10. He has to pay tax like regular levy in case of purchase from Unregistered Person.

11. He has to mention the word "Composition taxable Person" on every notice, signboard and very other place.

12. He has to mention the word "Composition taxable person not eligible to collect tax on supplies" at the top of 'Bill of Supply'.

For Service Provider

A person whose aggregate turnover in the preceding financial year (F.Y.) did not exceed ₹ 50,00,000 (Rupees Fifty Lakhs) may opt for composition scheme.

• Here for calculating aggregate turnover there is a exception, value of supply of exempt services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount, shall not be taken into account.

The following are the conditions :-

1.   He is a registered person under Regular Levy GST.

2.   He is not eligible to pay tax under sub-section (1) of section 10.

3.   He is not engaged in supplies which are not taxable under GST.

4.   He is not carrying out inter-state supplies.

5.   He is not a casual taxable person or a non-resident person.

6.  He is not engaged in supplies though E-Commerce Operates like Amazon, Flipkart etc., required to Collect TCS (tax collected as source). 

7.  He is not engaged in supplies as notified by council.

8.  He is not a Tax Collector/Tax Deductor.

9.  Who all are registered under same PAN will be levied under Composition scheme, if even applied by one.

10. He has to mention the word "Taxable person paying tax in terms of notification No. 2/2019-Central Tax (Rate) dated 07.03.2019, not eligible to collect tax on supplies" at the top of 'Bill of Supply'.

 

This is complied details about the Composition Levy. For any suggestion, comment & query please comment in the comment box below.

Disclaimer :

The above blog is purely for educational and  guidance purpose. It's just the reflection of the author's personal experience and judgment. The author has just provided the general information & understanding and its not at all an alternative of any legal advice or practitioner. It has no connection with the websites mentioned in its contents. The content stated in the blog should be used by the reader at his own discretion and sole responsibility. The content of the blog can be only used for any other document, write-up, article, blog and any written or printed material whether on paper or digitally in any form, with the prior permission of the author.