What is Composition Levy Scheme in GST

 Composition Levy Scheme in GST

GST

Introduction:

In this article, we will discuss the composition levy scheme. we know that under GST suppliers are required to go through various stages and complex administrative processing procedures. for small and medium-sized suppliers a concept composition scheme has been brought. The reason behind this is to make GST easier for the small businesses who want to avoid these tedious & time consuming processes of compliance with GST norms. so in this article, we shall see:

1. What is composition scheme : The Composition levy scheme is a very much simple, hassle free compliance scheme for small taxpayers who can avoid the complexity of filing the GST returns on a regular basis. It is a voluntary and optional scheme, people who are willing to, can opt for this scheme.

A taxpayer under composition levy scheme has to pay a certain fixed percentage of his annual turnover as tax to the government. This tax has to be paid on a quarterly basis. Such a taxpayer does not have to maintain elaborate accounts and records and instead of two monthly statements and a return, has to file a simple quarterly return in FORM GSTR-04. However, upon opting for this scheme, he cannot issue taxable invoice under GST law and can neither collect GST from his customers nor can claim Input Tax credit on the purchases this taxpayer has made.

It is compulsory to register under GST law for opting for the Composition scheme. A person who is registered under existing laws and has obtained a provisional registration under GST has to file an electronic intimation.

2. who is eligible to of the composition scheme: Provisions for this composition levy scheme have been mentioned under section 10 of the Central GST Act, 2017 and Chapter 2 of the CGST Rules, 2017. Under this scheme, a registered taxable person, whose aggregate turnover does not exceed INR 1.5 crores in the financial year, may opt for this scheme. In the Northeastern states and Uttarakhand the threshold limit is 75 lacs. The North east states are  Assam, Arunachal Pradesh, Manipur, Mizoram, Meghalaya, Nagaland, Sikkim Tripura and Uttarakhand.

3. who is not eligible to opt for composition scheme:

1.  A registered person cannot choose to opt for the Composition scheme in one state and not in other states. 

2. A casual taxable person who supplies in a State or Union Territory where he has no fixed place of business. 

3. A non-resident Taxable person i.e. a person who undertakes supplies but has no fixed place of business or residence in India.

4. A person engaged in providing inter-state supply of goods. 

5. A person engaged in supply of non-taxable goods or exempted goods i.e. goods which are not taxable under GST law

6. A person who is supplying goods through an Electronic Commerce medium like Amazon, Flipkart etc

7. Suppliers of non-GST goods like alcoholic liquor for human consumption, crude petroleum, diesel etc are not eligible for this scheme.

8. A person engaged in manufacturing of goods notified under sec 10 (2) (e) of the CGST Act either in the year 2016-17 or later. The notified goods are as below:

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

2. Pan masala

3. Tobacco and manufactured tobacco substitutes

4. what are the composition rules:

These are certain rules that the composition person must follow.

• The composition levy scheme person must Issue bill of supply in the prescribed manner 

• The person needs to pay all taxes on purchases including taxes to be paid on reverse charge basis. In this reverse charge mechanism, the recipient of goods has to pay the tax, not the supplier.

• The person who has opted this scheme cannot claim input tax credit of purchases & also cannot collect GST from his customers.

• Has to clearly mention the words “composition taxable person” on every notice board or signboard displayed at the prominent place at his every place of business. 

Rate of Tax under the scheme:

There are three rates prescribed for three different categories of suppliers. 

• An eligible Manufacturer has to pay 2% (1% CGST and 1% SGST/ UTGST) of turnover in a state or Union Territory

• An eligible person engaged in making supplies of restaurant Service) has to pay 5% (2.5% CGST and 2.5% SGST/UTGST) of turnover in a state or Union Territory.

• An eligible person engaged in any other supply has to pay 1% (0.5% CGST and 0.5% SGST/UTGST) of turnover in a state or Union Territory.

Bill of Supply 

 

The most important part of this scheme is, a taxable person opting for the scheme has to issue a “bill of supply” as he is not eligible to issue taxable invoice under GST. He has to mention the words “composition taxable person, not eligible to collect tax on supplies” at the top of every bill of supply issued by him.