Composition Scheme Under GST - Conditions and Restrictions [GST Law & Practice B.Com 6th Sem CBCS Pattern Notes]

Composition Scheme Under GST, Conditions and Restrictions

GST Law & Practice Notes
B.Com 6th Sem CBCS Pattern

Introduction to Composition Scheme

The composition levy is an alternative method of levy of tax designed for small taxpayers whose turnover does not exceed a specified limit. The objective of composition scheme is to bring simplicity and to reduce the compliance cost for the small taxpayers. 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.

Composite scheme is introduced for small businesses whose aggregate turnover is less than 1.5 crores (75 lakhs for north-eastern seven sisters together with Uttarakhand). GST rate under composite scheme is 1% for trader and manufacturers, 5% for restaurants and 6% for service providers. Rate of GST is fixed under composition scheme and dealer is not allowed to claim input tax credit. Also dealers are required to file less return under Composite scheme.

Person not eligible to opt for composition scheme:

The registered person shall not be eligible to opt for the composition scheme if:

a) He is engaged in supply of services where the turnover in the preceding financial year does not exceed 5 crores (75 lakhs for north-eastern seven sisters together with Uttarakhand).

b) He is supplying goods which are not taxable under GST law.

c) He is making any inter-state supplies of goods.

d) He is not engaged in making any supply of goods through an electronic commerce operator who is required to collect tax at source under Sec 52; and

e) He is not a manufacturer of following goods notified by the Government:

- Ice cream and other edible ice, whether or not containing cocoa.

- Pan masala

- Tobacco and manufactured tobacco substitutes

- AERATED WATER

Conditions and Restrictions for Composition Levy (Rule 5 of Chapter II of the CGST Rules, 2017):

(a) The person opting for the scheme must neither be 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 option is exercised under rule 3(1) of the CGST Rules, 2017 (i.e. who opted composition scheme at the time of migrating into GST).

(c) The goods held in stock by him have not been purchased from an unregistered supplier and where purchased, he pays the tax under reverse charge (i.e. Section 9(4) of CGST).

(d) He shall pay tax as per normal rates, in case of inward supply of goods and services or both received under Section 9(3) or (4) of CGST Act, 2017. These sub-sections provide for payment of tax by recipient of goods or services. Where the taxpayers deal with unregistered person, tax must be paid or no stock must be held.

(e) He was not engaged in the manufacture of goods as notified u/s 10(2)(e) of the CGST Act, 2017 during the preceding financial year. The registered person shall not be eligible to opt for composition levy under clause (e) of sub-section (1) of section 10 of the said Act if such person is a manufacturer of the following goods:

- Ice cream and other edible ice, whether or not containing cocoa.

- Pan masala

- Tobacco and manufactured tobacco substitutes

- AERATED WATER

(f) Mandatory display on invoices of the words” composition taxable person, not eligible to collect tax on supplies”.

(g) Mandatory display of the words “Composition Taxable Person” on every notice and signboard displayed at a prominent place.

(h) Sec 10(4) of the GST Act, 2017 stages that a taxable person to whom the provisions of sec 10(1) apply shall not:

- Collect any tax from the recipient on supplies made by him.

- Be entitled to any credit of Input tax.

Composition Rate of Tax