What is a Composition Levy?
The composition levy is an alternative method of levy of GST for small taxpayers whose aggregate turnover in the preceding year from the sale of goods is up to Rs. 1.5 Crore ( Rs. 75 lakhs in the case of north-eastern states and Himachal Pradesh).
The objective of the composition scheme is to bring simplicity and reduce compliance costs for small taxpayers.
Conditions for Availing Composition Scheme:-
An input tax credit cannot be claimed by a dealer who selects the composition scheme.
Dealers cannot do inter-state supplies or sales.
Dealers are not allowed to provide products like alcohol that are exempt from GST taxes.
Reverse Charge Mechanism transactions are subject to standard taxation rates.
All notices, billboards, and supply bills must clearly state, "composition taxable person."
Dealer is not supplying goods via e-commerce aggregators.
A producer or merchant may offer services up to 10% of their sales or Rs. 5 lakhs, whichever is higher.
Who Cannot Opt for Compisition Scheme:-
Manufacturer of ice cream, pan masala, or tobacco
A person making inter-state supplies
A casual taxable person or a non-resident taxable person
What is GST Rate for Composite Dealers
Manufaturers - 2%
Traders - 1%
Restaurant Service - 5%
Service Providers - 6%
What happens if during the year limit of Turnover of Rs 1.5 Crore / Rs. 75 Lakhs as the case may be is crossed ? Can tax payer continue to be under compoistion scheme ?
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. 1.5 Crore / Rs. 75 lakhs). 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.
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
What will be included in Aggregate Turnover for calculating limit ?
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.
GST Return Compliances for Composite Dealers
Composition dealer is required to pay tax on a quarterly basis in a challan-cum-statement, i.e Form CMP - 08
They are also required to file an annual return in Form GST4
Few Other Notable Points Relating to Composite Scheme
Composite Dealers cannot issue tax invoice or collect GST from the customers .This means if Mr.A sells goods Rs 10000 to Mr.B, it cannot charge 1% GST additional over and above it. 1% GST applicable to composite trader has to be paid from own's pocket
Customers / Recipient purchasing from Compoiste Dealers cannot avail input credit of the GST paid by composite dealers.
Composite scheme is an option and not compulsion and dealers can opt for composite scheme in one year and opt out from composite scheme in next year.
To opt into composite scheme , dealer has to file Form CMP-02 at year start and not anytime in between the year
Impact on Input Credit on Stock and Capital Goods in hand on date of Opting in from Composite Scheme
The registered person opting to pay tax under composition scheme is required to pay / reverse credit in electronic ledger as the case may be an amount equal to the input tax credit in respect of inputs held in stock and inputs conatined in semi-finished or finished goods held in stock on the day immediately preceding the date of exercise of option.
The ITC on inputs shall be calculated proportionately on the basis of corresponding invoices on which credit had been availed by the registered taxable person on such inputs.
In respect of capital goods held in stock on the day immediately preceding the date of exercise of option, the input tax credit involved in the remaining useful life in months shall be computed on pro-rata basis, taking the useful life as 5 years. Assume capital goods have been in use for 4 years, 6 months and 15 days. The useful remaining life in months will be 5 months ignoring the part of the month. If ITC on such capital goods is taken as C, ITC attributable to the remaining useful life will be C multiplied by 5/60. This would be the amount payable on capital goods.
The ITC amount shall be determined separately for integrated tax, central tax and state tax/Union territory tax. The payment can be made by debiting electronic credit ledger, if there is sufficient balance in the said ledger, or by debiting electronic cash ledger.The balance , if any in the electronic credit ledger would lapse.
Such persons also have to furnish the statement in FORM GST ITC-03 which is a declaration for intimation of ITC reversal/payment of tax on inputs held in stock, inputs contained in semi-finished and finished goods held in stock and capital goods under Section 18(4) of the CGST Act, 2017 within a period of sixty days from the commencement of the relevant financial year.
Impact of Withdrawal from Composite Dealers and Input Credit on Stock / Capital Goods
Tax Payer 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
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