COMPOSITION LEVY
Composition levy scheme under the law is for small businesses. This is to bring relief to small businesses so that they need not be burdened with the compliance provisions under the law. Thus, an option has been provided where they can opt to pay a fixed percentage of turnover as fees in lieu of tax and be relieved from the detailed compliance of the provisions of law. Composition levy would be generally opted by persons who are supplying goods & services or both to the end consumer.
THRESHOLD LIMIT FOR COMPOSITION LEVY
- Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, and Himachal Pradesh – Aggregate turnover of the person having same PAN of above Rs 10 lakhs during the previous financial year but does not exceed Rs 75 lakhs.
- Rest of India – Aggregate turnover of the person having same PAN of above Rs 20 lakhs during the previous financial year but does not exceed Rs 1 crore.
PERSONS NOT ENTITLED TO AVAIL COMPOSITION SCHEME
(a) A taxable person is engaged in the supply of services. (other than restaurant and outdoor catering services)
However , A person eligible for composition scheme also supplying exempt services including services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount, would not become ineligible for the composition scheme.
As per the CGST (Amendment) Act, 2018, a composition dealer can also supply services to an extent of 10% of turnover, or `5 Lakhs, whichever is higher. This amendment is applicable from the 1st of Feb, 2019.
(b) A taxable person is engaged in making any supply of goods which are not leviable to tax under this act.
This condition means that if a registered person is engaged in supply of something not leviable to tax under CGST Act, he shall not be eligible for this scheme. “Not leviable to tax” under this Act does not mean mere exempted goods. It refers to goods which cannot be taxed under this Act. Thus, a person who is engaged in supply of alcoholic liquor for human consumption or a restaurant serving alcoholic liquor cannot opt for this scheme.
(c) A taxable person is engaged in making any interstate outward supplies of goods ( one state to another state )
(d) A taxable person is not engaged in making any supply of goods through an electronic commerce operator who is required to collect tax at source under Section 52 of the Act.
(e) A taxable person is not a manufacturer of such goods as may be notified by the Government on the recommendation of the GST council.
(f) Where more than one registered person is having the same Permanent Account Numberissued under the Income-tax Act, 1961, the registered person shall not be eligible to opt for the composition scheme unless all such registered persons are eligible under composition scheme and opt to pay tax under the scheme.
CONDITIONS & RESTRICTIONS FOR GST COMPOSITION LEVY
As per Rule 5 of Chapter II of the CGST
The person exercising the option to pay tax under section 10 shall comply with the following conditions, namely:-
(a) He is neither a casual taxable person nor a non-resident taxable person;
(b) The goods held in stock by him on the appointed day 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, where the option is exercised by a dealer migrating to GST scheme starting from appointed day;
(c) The goods held in stock by him have not been purchased from an unregistered supplier and where purchased, he pays the tax under section 9 (4);
(d) He shall pay tax under sub-section (3) or sub-section (4) of section 9 on inward supply of goods or services or both;
(e) He was not engaged in the manufacture of goods as notified under clause (e) of sub-section (1)of section 10, during the preceding financial year;
(f) 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; and
(g) He shall mention the words “composition taxable person” on every notice or signboard displayed at a prominent place at his principal place of business.
A casual taxable person, or a non-resident taxable person is not eligible for composition scheme.
Composition scheme can be opted on the condition that goods held in stock by the person opting for the scheme on the appointed day has not been purchased in course of inter-state trade, or imported from outside India. Further goods held in stock has not been purchased from unregistered dealer.
RATE OF COMPOSITION LEVY IN GST
The rate of Composition Levy in lieu of tax would be prescribed but it would not be exceed:
a) 1% of the turnover in State or turnover in Union Territory in case of a manufacturer.
b) 2.5% of the turnover in State or turnover in Union Territory in case of persons engaged in making supplies. This entry covers the registered persons making supply of food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption. For e.g. Restaurants or Hotels.
c) 0.5% of the turnover in State or turnover in Union Territory in case of other suppliers.
However, the above rates are only in respect of CGST Act, Equivalent Rates would be prescribed under SGST/UTGST Act. Thus effective rates would be 2% for manufacturers, 5% for persons making supply of food etc. and 1% in case if other suppliers.
| Sr No. | Category of Registered Person | Rate of CGST | Rate of SGST | Total |
| (a) | Manufacturers other than manufacturers of such goods as may be notified by the Government. | 0.5% | 0.5% | 1.0% |
| (b) | Restaurant services and Outdoor catering services (not serving alcohol) | 2.5% | 2.5% | 5.0% |
| (c ) | Any other supplier eligible for composition levy (section 10) | 0.5% | 0.5% | 1.0% |
GST COMPOSITION RETURNS
| Sr No. | Returns to be filed | Due Date for filing of Return |
| (a) | GSTR – 4 (Quarterly return) | 18th of the month after the end of the |
| (b) | GSTR – 9A (Annual return) | 31st December of next financial |
OTHER PROVISIONS
- No Input Tax Credit (ITC) will be made available to composition levy of tax. Composition dealers cannot make interstate sales.
- Composition dealers are not required to maintain detailed records. Composition dealers cannot issue Tax Invoice.
- Composition dealers cannot charge tax from their customers. It should be pay tax out of their own pocket.
- Composition dealers must issue Bill of Supply instead of Tax Invoice and should mention “composition taxable person” not eligible to collect tax on supplies on their top of Bill of supply.
QUESTION COVERED
Write a detailed note on the liability of payment of GST in case of Composition scheme of goods and services tax?
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