If your yearly turnover is less than 1.5 Crores, then there is simplified taxation scheme under GST which prescribe simplified tax calculation and simplified compliance procedure. This article will help you to get basic understanding of the scheme. However still if you have any queries for the scheme you may email it on our email ID info@fibota.com
What is Composition Scheme?
The Composition Scheme under GST is introduced by government wherein small tax payers are not required to follow the detailed GST compliance like other tax payers. The calculation of tax liability and return filing process under composition is simple. The taxpayer opting to pay tax under the composition scheme needs only to ascertain the aggregate value of outward taxable supplies, and compute the tax thereon at a fixed rate, regardless of the actual rate of tax applicable on the said outward supply.
Who can opt for Composition Scheme?
The taxpayer whose turnover in the preceding Financial year does not exceed Rs 1.5 Crores(the limit is applicable from 01st April 2019) for all states except Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Uttrakhand where the turnover limit is Rs 75 Lakhs.
Who can not opt for Composition Scheme?
Turnover criteria are not applicable to following taxpayers as the Composition Scheme has specifically excluded certain category of person, irrespective of their turnover. The following person cannot opt for Composition Scheme: –
- Supply of goods through E-commerce operator
- Person engaged in supply of Services (other than Restaurant service who are not serving alcohol).However, government has specified separate scheme which is similar to the composition scheme, service Providers or Mixed Suppliers i.e Good and Service can opt for such specified scheme if their turnover is up to INR 50 Lakh in Preceding Financial year (this scheme is effective from 01.04.2019. The whole scheme is driven by notification no 2/2019 issued by GST Department, Readers may refer separate material published by us for this scheme).
- Casual Taxable Person
- Non Resident Person
- Manufacturer of Ice-cream, tobacco and substitute of tobacco and Pan masala.
- Person engaged in interstate supply of sale or service
Is there any other scheme for service provider or a person selling goods and Services?
Yes, government has issued notification no. 2/2019-CT(Rate) dated 07-03-2019, wherein a simplified scheme has been introduced for a Person providing services or a person Providing Services and goods whose aggregate turnover in Preceding Financial year does not exceeds Rs 50 Lakhs. This scheme is not composition scheme but the provisions of this scheme are similar to composition scheme. The details of this scheme will be addressed in this article.
Who cannot opt for Scheme notified through notification no. 2/2019 dated 07.03.2019?
The following person cannot opt for scheme notified under abovementioned notification: –
- Supply of goods through E-commerce operator
- Person who has opted for Composition Scheme
- Person engaged in supply which not leviable to tax under GST Act (Generally petroleum products).
- Casual Taxable Person
- Non Resident Person
- Person engaged in supply of Ice-cream, tobacco and substitute of tobacco and Pan masala.
Which Scheme should I select – Composition scheme or scheme notified under notification no 2/2019 dated 07.03.2019?
If you are trader, manufacturer or Restaurant Service Provider you should opt for composition scheme as the eligible turnover limit is 1.5 Crores and tax rate is 1%. However, if you are service provider (other than Restaurant Service Provider) or supplier of goods and service and your turnover in the preceding financial year is less than Rs 50 Lakh then you should opt for the scheme notified in the notification no. 2/2019 dated 07.03.2019.
- Supply of goods through E-commerce operator
- Person who has opted for Composition Scheme
- Person engaged in supply which not leviable to tax under GST Act (Generally petroleum products).
- Casual Taxable Person
- Non Resident Person
- Person engaged in supply of Ice-cream, tobacco and substitute of tobacco and Pan masala.
Simple understanding of eligibility under Composition Scheme
Below chart will help the reader to understand the eligibility criteria under composition scheme.
Manufacturer having Turnover less than Rs 1.5 Crore in Preceding Financial year
Eligible for Composition Scheme.
However, if the product manufactured is Ice cream, Tobacco or Pan masala then not eligible
Trader having
Turnover less than
Rs 1.5 Crore in
Preceding Financial year
Eligible for Composition Scheme.
However, if the goods are traded through e-commerce portal not owned by the trader and that e-commerce operation is liable to TCS then no eligible for Composition Scheme
Service Provider having turnover less than Rs 1.5 Crore in Preceding Financial year
Not Eligible for Composition Scheme.
However, if the service providing restaurant service and not serving alcohol in that restaurant then the service provider is eligible for composition scheme. Further the Service Provider having Annual Turnover in Preceding Financial year uptoRs 5 Lakh can opt for simple scheme introduced by Government which is similar to Composition Scheme
How to calculate the Turnover for eligibility under Composition Scheme and Scheme notified under notification no. 2/2019 CT(Rate) dated 07th March 2019?
For the purpose of determining the turnover in order to opt for composition scheme the turnover should include all supplies i.e. Taxable supplies within the state having same PAN, exempt supplies, exports of goods or services or both. If the turnover considering all the supplies mentioned is less than INR 1.5 Crore in Preceding Financial year then the taxpayer is eligible for composition Scheme (subject to other conditions mentioned above). The method of calculation of turnover is applicable to all i.e. Manufacturer, Restaurant Service Provider and Trader. Further it has been clarified by the GST Department that interest or discount received by taxable person on deposits, loans or advance shall not be considered for the purpose of eligibility of the scheme.
How to calculate the Turnover for Payment of Tax under Composition Scheme?
The turnover should include Aggregate of turnovers across all States under the same PAN,including exempt supplies. The following should not be included in calculation of Turnover for Composition Scheme: –
- Turnover pertaining to exempt serviceshall not be taken into account. (Clarified through Order No. 01/2017 dated 13.10.2017). Therefore, turnover pertaining to exempt goods shall be taken in account for payment of Tax.
In case of Trader, the turnover should only include the taxable turnover i.e. if the trader has opted for composition scheme then exempt turnover shall not be included for payment of tax.
Manufacturer under
composition Scheme
Tax is payable @ 1% of the Turnover which includes: –
- Turnover of all states under same PAN
- Turnover of Exempt Goods – Turnover of exempt Services shall not be considered
- Turnover from Export of Goods or services.
Restaurant Service Provider under Composition Scheme
Tax is payable @ 5% of the Turnover which includes: –
- Turnover of all states under same PAN
- Turnover of Exempt supplies – Turnover of exempt Services shall not be considered
- Turnover from Export of Goods or services.
Trader under
Composition Scheme
Tax is payable @ 1% of the Turnover which includes: –
- Turnover of all states under same PAN
Turnover for exempt supplies shall not be included
As mentioned above manufacture and Restaurant Service Provider are required to pay tax under exempt goods as well. Therefore, it is necessary to do cost benefit analysis before opting for the Composition Scheme.
It is also to be noted that in case of Manufacturer and Restaurant Service Provider for the purpose of determining eligibility under composition scheme all turnover i.e. taxable as well as exempt supplies shall be included. However, for the purpose of payment of tax turnover of exempted service shall be excluded.
It is also to be noted that in case of Trader for the purpose of determining eligibility under composition scheme all turnover i.e. taxable as well as exempt supplies shall be included. However, for the purpose of payment of tax only taxable supplies shall be considered.
How to calculate the Turnover for Scheme notified under notification no. 2/2019 dated 07.03.2019?
The scheme is generally opted by those who are not eligible for composition scheme i.e Service providers other than restaurant or a person providing Services and Goods. The turnover should include value of all outward supplies of goods or services or both.
What is the Rate of Tax under Composition Scheme and for the Scheme notified under notification no 2/2019 – Central Tax (Rate) dated 7th March, 2019?
The taxpayer opting to pay tax under the composition scheme are required to pay tax at fixed rates on the turnover. The details of Rates are as under: -+
Particulars | CGST | SGST | Total Tax Rate |
Manufacturer | 0.5% | 0.5% | 1% |
Restaurants not serving alcohol | 2.5% | 2.5% | 5% |
Others | 0.5% | 0.5% | 1% |
Service Provider or supplier of goods and services having turnover up to Rs 50 Lakh – falling under Separate Schemenotified under notification no 2/2019 CT(Rate) dated 7-3-2019. | 3% | 3% | 6% |
Am I eligible for Input Tax Credit if I am under Composition Scheme or Scheme notified through notification no 2/2019 – Central Tax (Rate) dated 7th March, 2019?
No, the taxpayer opting for Composition Scheme cannot tax any kind of Input Tax Credit.
Do I need to pay Tax on Reverse Charge Mechanism if I am Cover under Composition Scheme or under Scheme notified under notification no 2/2019 – Central Tax (Rate) dated 7th March, 2019?
Yes, you are required to pay tax on reverse charge mechanism. The Input Tax credit of such tax paid on reverse charge mechanism is not available to the dealer. Hence the said tax paid needs to be expensed out as it is additional cost to you or your business. However, you are eligible for claiming such expense as deduction under Income Tax Act.
What is the rate of Tax for payment under Reverse Charge Mechanism for taxpayer covered under composition Scheme or under Scheme notified under notification no 2/2019 – Central Tax (Rate) dated 7th March, 2019?
The tax rates for payment of tax under reverse charges shall be the applicable rate defined under GST which ranges from 5% to 28%. The taxpayer cannot use the rates specified for Composition Scheme or rate notified under notification 2/2019i.e 1%, 5% or 6% for payment of tax under reverse charge mechanism.
I am a dealer under Composition scheme or under Scheme notified under notification no 2/2019 – Central Tax (Rate) dated 7th March, 2019 can I sale or supply goods from Gujarat to Maharashtra?
No, the dealer under composition scheme cannot undertake inter-state supply of goods and if he undertakes such supply then he will not be eligible for composition scheme.
I am a dealer under Composition scheme or under Scheme notified under notification no 2/2019 – Central Tax (Rate) dated 7th March, 2019 in Gujarat can I purchase goods or avail services from Maharashtra?
Yes, you can avail services or purchase goods from Maharashtra as the Law allows the composition to make interstate purchase/inward and restrict interstate sale/supply.
I am a dealer under Composition scheme and in the Financial year I have provided services of nominal/negligible amount to my customer, therefore will I be eligible for composition scheme?
In view of amendment made, the GST Council (in its 11th meeting held in New Delhi) has now allowed composition supplier to supply services to the extent of 10% of turnover in a states in the preceding Financial years or Rs 5 Lakh, whichever is higher.This provision is only for composition scheme.
I am paying tax under normal Provision of GST and I want opt for Composition Scheme. What is the Procedure to opt for Composition Scheme?
The below mentioned procedure also applies to a person who is paying tax under normal mechanism of GST and wants to avail the scheme of small tax payer defined under notification no. 2/2019 Central Tax dated 07th March 2019.
You must apply in FORM – GST CMP – 02 (even the person opting for scheme defined under Notification no. 2/2019 shall file GST CMP – 02 and should select the category as “any other supplier eligible for composition levy” as listed in sr. no. 5(iii) of the said form) through online portal of GST (URL: www.gst.gov.in). The scheme cannot be opted in the middle of the Financial year. Therefore, you need to apply before the end of the Financial year and the benefits of scheme will be available to you for the next financial year for which composition scheme is exercised. For example, you are paying tax under normal levy of GST for FY 2017-18 then in the middle of the financial year you cannot get the benefit of Composition Scheme. Therefore, you need to apply before the end of 31.03.2018 and opt for the scheme for FY 2018-19.
Apart from above the person switching from normal levy under GST to composition scheme shall file GST ITC-03.GST ITC – 03 shall be filed within 60 days from Commencement of the Financial year. It is a statement wherein the details of closing stock held by taxpayer and input credit on such stock needs to be furnished. GST ITC-03 can be furnished through online or offline utility available in the online GST Portal. It must be noted that person switching from regular mechanism under GST to Composition scheme may have closing stock and he would have Input Tax credit on Input, Input Services and on Capital Goods. Composition Scheme strictly denies benefit of Input Tax Credit. Therefore, such Input tax credit on Closing stock of Raw Material, Semi finished goods held in stock, finished goods held stock and Capital Goods needs to be reversed.
Manner in which details are required to be furnished in GST ITC – 03
- Invoice wise details of stocks and Capital Goods and Input Tax credit on stock and Capital Goods shall be furnished in Table 5(a),(b) and (c) of form GST ITC-03.
- If invoice wise details are not available or not identifiable, then for Input held in stock: – FIFO method needs to be followed.
- If invoice wise details are not available for certain input or capital goods then value shall be estimated based on prevailing market price on the effective date of occurrence of any events which have necessitated the filing of form GST ITC-03. (CA certificate is required in this kind of situation)
- For Capital Goods the invoice value shall be reduced by 1/60th Per month or Part of the month from the date of invoice. To simplify the tax payer is eligible for credit upto 20% per year i.e. if Input Tax Credit amounting to Rs 5,00,000 has been availed and utilized on capital goods and that capital goods has been used for 2 full years i.e 24 months than 40% Input Tax Credit amounting to Rs 2,00,000 is allowed to the taxpayers and Rs 3,00,000 (60% remaining Input Tax Credit) shall be reversed/paid by the dealer.
On the basis of details filed in Table 5 of GST ITC – 03 the amount of tax payable will be displayedin the form for each taxes i.e CGST, SGST, UGST and IGST as the case may be. The tax payment shall be made using Cash or Credit Ledger.
The Chartered Accountant certificate certifying such details shall be furnished in the prescribed manner along with GST ITC – 03.
I am not registered under GST and I want opt for Composition Scheme. What is the Procedure to opt for Composition Scheme registration?
In case of new registration Part B of Form GST REG – 1 needs to be filed to obtain registration under composition Scheme.
Can I issue tax invoice if I am registered under composition scheme or scheme defined under Notification no 2/2019 dated 07th March 2019?
No, since you cannot collect tax from customers you need to issue “Bill of Supply” instead of “Tax Invoice”.
For person under Composition scheme he shall mention the word “Composition Taxable Person, not eligible to collect tax on supplies” at the top of Bill of Supply issued by him.
For person under Scheme notified by notification no. 2/2019 dated 07.03.2019 he shall mention the word “Taxable Person paying tax in terms of Notification No. 2/2019-CT(Rate) dated 07-03-2019, not eligible to collect tax on supplies”.
I am paying tax under Composition Scheme and I want switch to normal scheme. What is the Procedure? or My turnover exceeds Rs 1.5 Crore and I was under Composition Scheme, what are the consequences?
- The first step is to start issuing taxable invoices for sales, instead of bill of supply. You will be eligible to collect tax from customer, therefore, GST applicable rates should be charged in the Taxable invoice by supplier. The top of the invoice should not contain the word “Dealer under composition scheme…..” such heading should be removed.
- File intimation in GST CMP – 04 within 7 days of occurrence of such event if dealer cease to satisfy the condition. In case of voluntary withdrawal then before the date of withdrawal.
While filing the intimation (GST CMP – 04) on the online portal of GST, the dealer has to give the date from which withdrawal from Composition Levy is sought and reason for withdrawal.
- The taxpayer who withdraw from scheme is now eligible for availing Input Tax Credit therefore input tax credit on Stock and Capital goods will now be available to the taxpayer. For the purpose of availing input tax credit on stock and capital goods the taxpayer should file ITC-01 within 30 daysfrom the date from which such option is withdrawn.
Invoice wise details is to be furnished in ITC-01 for stock and Capital Goods. If invoice is not identifiable for each stock the FIFO principal is to be followed. The value of capital goods shall be the invoice value reduced by 5% per quarter of year or part thereof from the date of invoice (In simple terms 20% credit per year will lapse till the time capital goods are used under composition scheme). The Chartered Accountant certificate certifying such details shall be furnished in the prescribed manner along with GST ITC – 01.
If invoicesare not available, then no credit can be availed. It must be noted that while opting from normal levy under GST to Composition Scheme, if no details of invoices are available then also credit is to be reversed. However, while transferring from Composition scheme to normal levy under GST, if details of invoices are not available then not credit can be availed or utilized.
What is the due date for payment of tax and filing of Returns under Composition Scheme and Scheme notified under notification no 2/2019 dated 07th March 2019?
- The Composition dealer is required to file CMP-08on 18th of the month after the end of quarter.CMP-08 is statement and challan which contains the summary of tax payable for a given quarter. Earlier dealer where required to file GSTR – 4, however by way of notification no. 21/2019 – Central Tax Dated 23rd April 2019, w.e.f from FY 2019-20, CMP-08 is to be filled by the dealer.
Period | Due Date |
Apr-June | 18th July |
July-Sep | 18th Oct |
Oct-Dec | 18th Jan |
Jan-Mar | 18th Apr |
- Apart from above dealers are also required to file GSTR-4 annually. The due date of filing GSTR-4 is on or before 30th Day of April following the end of financial year.
- The dealers are also required to furnish the annual return in GSTR-9A and the due date of filling of GSTR-9A is 31st December of the next Financial year.