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Composition Scheme under the GST Law for small Taxpayers [Section 10(1) of CGST Act, 2017]

The objective of composition scheme is to  bring simplicity and give relief to small taxpayers so that they need not be burdened with the compliance  provisions under the GST law. Moreover, it is an optional scheme and the eligible person can opt to pay a fixed  percentage of turnover as fees every quarter instead of paying tax at normal rate. 

A registered person, whose aggregate turnover in the preceding financial year did not exceed Rs. 1.5 crore, may opt to pay, in lieu of the normal tax payable by him, an amount calculated at such rate  as may be prescribed as mentioned in table —

Rate of GST of the Composition Levy :

SL. No.

Category of Registered Persons

Rate of GST

1.

Manufacturers, other than manufacturers of such goods as may be notified by the  Government, namely— 
— ice-cream and other edible ice, whether or not containing cocoa; 
— Pan Masala; 
— Tobacco and manufactured tobacco substitutes

1%  (0.5% CGST +  0.5% SGST/  UTGST)

 

Supply, by way of or as part of any service or in any other manner whatsoever, of  goods, being food or any other article for human consumption or any drink (other  than alcoholic liquor for human consumption), where such supply or service is for  cash, deferred payment or other valuable consideration

5%  (2.5% CGST +  2.5% SGST/  UTGST)

 

Any other supplier eligible for composition levy under section 10 and the  provisions of this Chapter

1%  (0.5% CGST +  0.5% SGST/  UTGST)

1. Meaning of "Aggregate turnover"  for Composition Scheme under GST Law

“Aggregate turnover” means the aggregate value of all— 
(i) taxable supplies, 
(ii) exempt supplies, 
(iii) exports of goods or services or both, and 
(iv) inter-State supplies 
of persons having the same Permanent Account Number computed on all India basis 

but excludes … 
(i) central tax, 
(ii) State tax/Union territory tax, 
(iii) integrated tax, and 
(iv) cess. 

Further, it will also exclude the value of inward supplies on which tax is payable by the registered person (i.e.  recipient of supply) on reverse charge basis. 

2. Meaning of Registered Person  for Composition Scheme under GST Law

“Registered person” means a person who is registered under section 25 of the CGST Act but does not include  a person having a Unique Identity Number.

3. When is the Registered Person Eligible to opt for Composition Scheme? [Section 10(2) of CGST  Act, 2017] 

The person opting for composition levy should first satisfy the following basic conditions: 

  1. He should be a registered person under the GST law  , and 

  2. his aggregate turnover in the preceding financial year should not exceed Rs. 1.5 crore.  If the above two basic conditions are satisfied, then such registered person shall be eligible to opt under  section 10(1) of composition scheme, if:— 

    1.  he is not engaged in the supply of services other than supplies, by way of or as part of any service of  goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for  human consumption), provided such supply or service is for cash, deferred payment or other valuable  consideration); 

In other words, persons engaged in supply of services shall not be eligible for the composition  scheme. However, supplier of restaurant service, mandap keeper and outdoor catering service shall  be eligible for composition scheme. 

    1. he is not engaged in making any supply of goods which are not leviable to tax under this Act (i.e.  alcoholic liquor for human consumption, petroleum crude, high speed diesel, motor spirit, natural gas, and  (v) Aviatiion Turbine Fuel); 

    2. he is not engaged in making any inter-State outward supplies of goods;

    3. he 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; and 

    4. he is not a manufacturer of such goods as may be notified by the Government on the recommendations  of the Council. 

The Government has notified that the manufacturers of— 
— ice-cream and other edible ice, whether or not containing cocoa; 
— Pan Masala; 
— Tobacco and manufactured tobacco substitutes 

shall not be eligible to opt for composition scheme.

4. When is the Registered Person NOT Eligible to opt for Composition Scheme?

The following persons though registered under GST law are not eligible for composition scheme even if their  aggregate turnover in the preceding financial year did not exceed Rs. 1.5 crore: 

  1. Supplier of services. However, supplier of restaurant service, mandap keeper and outdoor catering  service shall be eligible for composition scheme. 

  2. Supplier of goods which are not leviable to tax under this Act. At present the following goods are  not leviable to tax under this Act. 

    1. alcoholic liquor for human consumption

    2. petroleum crude

    3. high speed diesel

    4. motor spirit 

    5. natural gas, and

    6. Aviation Turbine Fuel 

  3. Supplier of inter-State outward supplies of goods. 

  4. Supplier of goods through an electronic commerce operator. 

  5. Manufacturers of

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

    2. Pan Masala; 

    3. Tobacco and

    4. manufactured tobacco substitutes. 

  6. a casual taxable person or a non-resident taxable person; 

  7. supplier who has purchased any goods or services from unregistered supplier unless he has paid GST  on such goods or services on reverse charge basis.

5. All Registered Persons having the same PAN must opt for Composition Levy [Proviso to Section 10(2)] 

Where more than one registered persons are having the same Permanent Account Number (issued under the  Income-tax Act, 1961), the registered person shall not be eligible to opt for the scheme under section 10(1) unless  all such registered persons opt to pay tax under that sub-section. 

Example  :

XYZ  Ltd. has its head office at Delhi. It has three branches which are located in Punjab, Haryana and Uttar  Pradesh. The head office and the branches are registered under the respective States. However, they have a  common Permanent Account Number. In this case, if the head office and the branch at Punjab are paying GST  under the normal scheme then the other two branches cannot opt for the composition scheme.

6. Lapse of the Option of Composition Scheme [Section 10(3) of CGST Act, 2017] 

The option availed of by a registered person under section 10(1), based on the aggregate turnover of the  preceding previous year, shall lapse with effect from the day on which his aggregate turnover during a financial  year exceeds the limit specified under section 10(1). In other words, the option shall lapse as soon as the  aggregate turnover exceeds Rs. 1.5 crore.

7. Person who opts for Composition Scheme shall not collect any Tax and shall not be eligible for  Input Tax Credit [Section 10(4) of CGST Act, 2017] 

A taxable person to whom the provisions of section 10(1) apply shall not collect any tax from the recipient on  supplies made by him nor shall he be entitled to any credit of input tax.  In other words, the person opts for the composition scheme shall not:  (i) collect any tax from the recipient on supplies made by him; nor  (ii) shall he be entitled to any credit of input tax 
8.  Penalty in case of wrongful availment of Composition Scheme [Section 10(5) of CGST Act,  2017] 

If the proper officer has reasons to believe that a taxable person has paid tax under section 10(1) despite not  being eligible, such person shall, in addition to any tax that may be payable by him under any other provisions of  this Act, be liable to a penalty and the provisions of section 73 or section 74 shall, mutatis mutandis, apply for  determination of tax and penalty.

 
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