Composition Scheme under GST (Section 10 of CGST Act, 2017 & Rules 3, 4, 5, 6, 7) (Updated up to 29.01.2024):-
INTRODUCTION:-
In the year of 2017 government of India introduced one nation one tax i.e. GST, Once person is registered under GST he needs to be comply many of the provisions related to GST. However it is very difficult for small tax payer to to comply such provisions as its result in to improving the administrative cost. Therefor for the benefit of the small tax payer and make every person to adhere to GST law, Composition Scheme comes in to the picture. The Composition levy scheme is a very simple, hassle free compliance scheme for small taxpayers. It is a voluntary and optional scheme.
Please note that this article states the current position with respect to Composition scheme and is not a compilation of the law as existed at the time of introduction of GST and amendments & notifications & circular made thereafter.
DEFINITION:-
1) Person:- As per the Section 2(84) “person” includes,
(a) An individual.
(b) A Hindu Undivided Family.
(c) A company.
(d) A firm.
(e) A Limited Liability Partnership.
(f) An association of persons or a body of individuals, whether incorporated or not, in India or outside India.
(g) Any corporation established by or under any Central Act, State Act or Provincial Act or a Government company as defined in clause (45) of section 2 of the Companies Act, 2013.
(h) Any body corporate incorporated by or under the laws of a country outside India.
(i) A co-operative society registered under any law relating to co-operative societies.
(j) A local authority.
(k) Central Government or a State Government.
(l) Society as defined under the Societies Registration Act, 1860.
(m) Trust; and
(n) Every artificial juridical person, not falling within any of the above.
2) Aggregate Turnover:- As per the Section 2(6) “aggregate turnover” means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess.
CONDITIONS & RESTRICTIONS:-
1) A Registered person is neither a casual taxable person nor a non-resident taxable person.
2) A Registered person is not engaged in making any inter-State outward supply of goods.
3) Subject to Section 10(1) & Section 10(2A), a Registered person is not engaged in the supply of services.
4) A Registered person is not engaged in making of non taxable supplies under the GST Act, 2017. (However he can make exempted supply)
5) A Registered person is not engaged in making any supply through an electronic commerce operator who is required to collect tax at source under section 52.
However a registered person can supply GOODS through electronic commerce operator. (w.e.f 1st day of October 2023) (inserted by Section 137 of Finance Act, 2023 vide Notification No. 28/2023-CT_31.07.2023)
Moreover the electronic commerce operator who is required to collect tax at source under section 52 as the class of persons who shall follow the following special procedure in respect of supply of goods made through it by the composite dealer. (Notification No. 36/2023- Central Tax_04.08.2023) (w.e.f. 01.10.2023)
(i) the electronic commerce operator shall not allow any inter-State supply of goods through it by the said person.
(ii) the electronic commerce operator shall collect tax at source under sub-section (1) of section 52 of the said Act in respect of supply of goods made through it by the said person and pay to the Government as per provisions of subsection (3) of section 52 of the said Act and
(iii) the electronic commerce operator shall furnish the details of supplies of goods made through it by the said person in the statement in FORM GSTR-8 electronically on the common portal.
6) A Registered person is not a manufacturer of the following goods. (As specified by Notification No. 14/2019 CT Dt. 07.03.2019 & Notification No. 43/2019 CT Dt. 30.09.2019 & Notification No. 04/2022 CT Dt. 31.03.2022)
(1) Ice cream and other edible ice, whether or not containing cocoa. (Tariff item:- 2105 00 00)
(2) Pan masala. (Tariff item:- 2106 90 20)
(2A) Aerated Water. (Tariff item:-2202 10 10)
(3) All goods, i.e. Tobacco and manufactured tobacco substitutes. (Tariff item:- 24)
(4) Fly ash bricks; Fly ash aggregates; Fly ash blocks (6815)
(5) Bricks of fossil meals or similar siliceous earths (6901 00 10)
(6) Building bricks (6904 10 00)
(7) Earthen or roofing tiles (6905 10 00)
As per Notification No. 01/2022 CT(Rate)_31.03.2022 GST rate for Point No. 4 to 7 has been increased form 5% to 12% but Notification No. 02/2022 CT(Rate)_31.03.2022 provided concessional rate of GST for Point no 4 to 7 @6% with following Conditions.
(a) credit of input tax charged on goods or services used exclusively in supplying such goods has not been taken; and
(b) credit of input tax charged on goods or services used partly for supplying such goods and partly for effecting other supplies eligible for input tax credits, is reversed as if supply of such goods is an exempt supply and attracts provisions of sub-section (2) of section 17 of the Central Goods and Services Tax Act, 2017 (12 of 2017) and the rules made thereunder.
8) A Registered person shall pay tax under sub-section (3) or sub-section (4) of section 9 on inward supply of goods or services or both. (i.e RCM).
9) A registered person shall issue, instead of tax invoice, a bill of supply.
10) A registered person shall not collect any tax from the recipient on supplies made by him nor shall he be entitled to any credit of input tax.
11) A registered person shall mention the words "composition taxable person, not eligible to collect tax on supplies"at the top of the bill of supply issued by him.
12) A registered person shall mention the words "composition taxable person" on every notice or signboard displayed at a prominent place at his principal place of business and at every additional place or places of business.
13) In computing aggregate turnover in order to determine eligibility of a registered person to pay tax under composition scheme, value of supply of exempt services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount, shall not be taken into account.(As per removal of difficulties order No. 01/2019 Dt. 01.02.2019)
1) Aggregate turnover of a registered person in the preceding financial year was 50 lakh rupees or below.
2) A registered person can opt for composition scheme under section 10(2A) only if he is not eligible to pay tax under section 10(1) of CGST Act, 2017.
3) A registered person who opted for composition scheme under section 10(2A), then he will discharge the GST liability @6% on entire outward supplies.
4) For the purposes of determining eligibility of a person to pay tax under Section 10(2A), include the supplies from the first day of April of a financial year to the date from which he becomes liable for registration under the said Act but for the purpose of determination of tax payable under Section 10(2A) shall not include the supplies from the first day of April of a financial year to the date from which he becomes liable for registration under the Act.
THRESHOLD LIMIT FOR COMPOSITION SCHEME:-
There are two type of Composition Scheme under Section 10 of CGST Act, 2017. (Popularly Known as Section 10(1) for goods & Section 10(2A) for Service)
1) Type 1 {Section 10(1) of CGST Act, 2017}:- If the persons registered in the state of,
(a) Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Uttarakhand:- Aggregate turnover in preceding financial year is should be Rs.75 Lakhs or below.
(b) Other than above states:- Aggregate turnover in preceding financial year should be Rs.1.50 Crore or below.
However Registered person may supply services (other than those referred to in clause (b) of paragraph 6 of Schedule II, i.e. Restaurant Service ), of value not exceeding,
(a) Ten per cent. of turnover in the preceding financial year or
(b) Five lakh rupees.
whichever is higher.
Provided that service supply along with the goods should be intra state. (Inter state supply of service is not allowed)
Provided further that for the purpose of calculating the Five lakh or Ten per cent of turnover, whichever is higher, The value of supply of exempt services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount, shall not be taken into account.(As per removal of difficulties order No. 01/2019 Dt. 01.02.2019).
2) Type 2 {Section 10(2A) of CGST Act, 2017}:- Aggregate turnover of goods or service or both in the preceding financial year should be 50 lakh rupees or below.
RATES FOR COMPOSITION SCHEME:-
1) Type 1 {Section 10(1) of CGST Act, 2017}:-
(a) Category of registered persons:- Manufacturers.
(b) Rate of tax:- 1% (0.5% SGST & 0.5% CGST) of turnover in the State or Union territory.
2) Type 2 {Section 10(2A) of CGST Act, 2017}:- Aggregate turnover of goods or service or both in the preceding financial year should be 50 lakh rupees or below.
RATES FOR COMPOSITION SCHEME:-
1) Type 1 {Section 10(1) of CGST Act, 2017}:-
(a) Category of registered persons:- Manufacturers.
(b) Rate of tax:- 1% (0.5% SGST & 0.5% CGST) of turnover in the State or Union territory.
(a) Category of registered persons:- Traders
(b) Rate of tax:- 1% (0.5% SGST & 0.5% CGST) of TAXABLE turnover in the State or Union territory.
(a) Category of registered persons:- Suppliers making supplies referred to in clause (b) of paragraph 6 of Schedule II (i.e. Restaurant or caterer)
(b) Rate of tax:- 5% (2.5% SGST & 2.5% CGST) of turnover in the State or Union territory.
2) Type 2 {Section 10(2A) of CGST Act, 2017}:-
(a) Description of supply:- First supplies of goods or services or both up to an aggregate turnover of fifty lakh rupees made on or after the 1st day of April in any financial year, by a registered person.
(b) Rate of tax:- 6% (3% SGST & 3% CGST) of turnover in the State or Union territory.
RETURNS:-There are three returns which every composite dealer needs to be furnished,
1) CMP-08:- As per rule 62(1) every composite dealer need to furnish a statement, every quarter or, as the case may be, part thereof, containing the details of payment of self-assessed tax in FORM GST CMP-08, till the 18th day of the month succeeding such quarter.
2) GSTR – 4:- As per rule 62(1) every composite dealer need to furnish a return for every financial year or, as the case may be, part thereof in FORM GSTR-4, till the thirtieth day of April.
As per Rule 62(3) following details should be included in GSTR 4,
(a) Invoice-wise inter-State and intra-State inward supplies received from registered and unregistered persons; and
(b) consolidated details of outward supplies made.
3) GSTR – 9A:- As per rule 80 every composite dealer need to furnish an annual return in Form GSTR 9A for every financial year on or before the thirty-first day of December following the end of such financial year.
REGISTRATION:-
1) New Registration:- As per the rule 3(2) any person who applies for registration under sub-rule (1) of rule 8 may give an option to pay tax under section 10 in Part B of FORM GST REG-01, which shall be considered as an intimation to pay tax under the said section.
2) Already normal tax payer registered person want to convert in to composition scheme:- As per the rule 3(3) any registered person who opts to pay tax under composition scheme shall file an intimation in FORM GST CMP-02 prior to the commencement of the financial year for which the option to pay tax under composition scheme is exercised. Once the option is exercised a registered person shall furnish the statement in FORM GST ITC-03 as per sub rule (4) of rule 44 within a period of sixty days from the commencement of the relevant financial year.
Rule 44(4) state that input tax credit, relating to inputs held in stock, inputs contained in semi-finished and finished goods held in stock, and capital goods held in stock, shall form part of the output tax liability of the registered person and the details of the amount shall be furnished in FORM GST ITC-03.
VALIDITY:-
Composition scheme is valid till the time of a registered person adhere to condition & threshold limit for composition scheme, once he ceases to satisfy the conditions & threshold limit he needs to intimate through GST portal for withdrawal from the composition scheme.
WITHDRAWAL FROM COMPOSITION SCHEME:-
1) Non compliance of conditions & threshold limit:- As per the rule 6(2) up on ceases to satisfy the conditions & threshold limit for composition scheme, a registered person shall intimate for withdrawal from the
scheme in FORM GST CMP-04 within seven days of the occurrence of such event.
2) Voluntary Withdrawal:- As per rule 6(3) the registered person who intends to withdraw from the composition scheme shall, before the date of such withdrawal, file an application in FORM GST CMP-04, duly
signed or verified through electronic verification code, electronically on the common portal.
3) By proper officer:- As per rule 6(4) Where the proper officer has reasons to believe that the registered person was not eligible to pay tax under section 10 or has contravened the provisions of the Act or provisions of this Chapter, he may issue a notice to such person in FORM GST CMP-05 to show cause within fifteen days of the receipt of such notice as to why the option to pay tax under section 10 shall not be denied.
4) Up on receipt of show cause notice in form CMP-05, a registered person is required to make response within fifteen days in form FORM GST CMP-06.
5) Up on receipt of response by proper officer from registered person, the proper officer shall issue an order in FORM GST CMP-07 within a period of thirty days of the receipt of such reply, either accepting the reply, or denying the option to pay tax under composition scheme under section 10 from the date of the option or from the date of the event concerning such contravention, as the case may be.
6) After filing of intimation for withdrawal from composition scheme, a registered person shall file a statement in FORM GST ITC-01 containing details of the stock of inputs and inputs contained in semi-finished or finished goods held in stock by him on the date on which the option is withdrawn or denied, within a period of thirty days from the date from which the option is withdrawn or from the date of the order passed in FORM GST CMP-07, as the case may be.
SUMMARY:-
Section 10 of CGST Act, 2017:- Composition Scheme.
Rule 3:- Intimation for composition levy. (Registration)
Rule 4:- Effective date for composition levy. (Beginning of the financial year)
Rule 5:- Conditions and restrictions for composition levy.
Rule 6:- Validity of composition levy.
Rule 7:- Rate of tax of the composition levy.
Form CMP-08:- Self assessed Tax under composition scheme.
GSTR 4:- GST Return once in a year.
GSTR-9A:- Annual return.
GST REG-01:- Fresh registration for composition scheme.
GST CMP-02:- A registered person apply for opting of composition scheme.
GST CMP-04:-Voluntary withdrawal from composition scheme.
GST CMP-05:-Notice by proper officer.
GST CMP-06:-Response to proper office.
GST CMP-07:-Order of proper officer.
GST ITC-03:- ITC in relation to closing stock of input, semi finished goods, finished goods, capital goods.
Note:- Sincere efforts have been made to make this article without any error. In case of any errors that you may want to bring to the notice of the author, queries or suggestions, the author may be reached at the following mail addresses,
E mail:- harkhani123@gmail.com
(b) Rate of tax:- 1% (0.5% SGST & 0.5% CGST) of TAXABLE turnover in the State or Union territory.
(a) Category of registered persons:- Suppliers making supplies referred to in clause (b) of paragraph 6 of Schedule II (i.e. Restaurant or caterer)
(b) Rate of tax:- 5% (2.5% SGST & 2.5% CGST) of turnover in the State or Union territory.
2) Type 2 {Section 10(2A) of CGST Act, 2017}:-
(a) Description of supply:- First supplies of goods or services or both up to an aggregate turnover of fifty lakh rupees made on or after the 1st day of April in any financial year, by a registered person.
(b) Rate of tax:- 6% (3% SGST & 3% CGST) of turnover in the State or Union territory.
RETURNS:-There are three returns which every composite dealer needs to be furnished,
1) CMP-08:- As per rule 62(1) every composite dealer need to furnish a statement, every quarter or, as the case may be, part thereof, containing the details of payment of self-assessed tax in FORM GST CMP-08, till the 18th day of the month succeeding such quarter.
2) GSTR – 4:- As per rule 62(1) every composite dealer need to furnish a return for every financial year or, as the case may be, part thereof in FORM GSTR-4, till the thirtieth day of April.
As per Rule 62(3) following details should be included in GSTR 4,
(a) Invoice-wise inter-State and intra-State inward supplies received from registered and unregistered persons; and
(b) consolidated details of outward supplies made.
3) GSTR – 9A:- As per rule 80 every composite dealer need to furnish an annual return in Form GSTR 9A for every financial year on or before the thirty-first day of December following the end of such financial year.
REGISTRATION:-
1) New Registration:- As per the rule 3(2) any person who applies for registration under sub-rule (1) of rule 8 may give an option to pay tax under section 10 in Part B of FORM GST REG-01, which shall be considered as an intimation to pay tax under the said section.
2) Already normal tax payer registered person want to convert in to composition scheme:- As per the rule 3(3) any registered person who opts to pay tax under composition scheme shall file an intimation in FORM GST CMP-02 prior to the commencement of the financial year for which the option to pay tax under composition scheme is exercised. Once the option is exercised a registered person shall furnish the statement in FORM GST ITC-03 as per sub rule (4) of rule 44 within a period of sixty days from the commencement of the relevant financial year.
Rule 44(4) state that input tax credit, relating to inputs held in stock, inputs contained in semi-finished and finished goods held in stock, and capital goods held in stock, shall form part of the output tax liability of the registered person and the details of the amount shall be furnished in FORM GST ITC-03.
VALIDITY:-
Composition scheme is valid till the time of a registered person adhere to condition & threshold limit for composition scheme, once he ceases to satisfy the conditions & threshold limit he needs to intimate through GST portal for withdrawal from the composition scheme.
WITHDRAWAL FROM COMPOSITION SCHEME:-
1) Non compliance of conditions & threshold limit:- As per the rule 6(2) up on ceases to satisfy the conditions & threshold limit for composition scheme, a registered person shall intimate for withdrawal from the
scheme in FORM GST CMP-04 within seven days of the occurrence of such event.
2) Voluntary Withdrawal:- As per rule 6(3) the registered person who intends to withdraw from the composition scheme shall, before the date of such withdrawal, file an application in FORM GST CMP-04, duly
signed or verified through electronic verification code, electronically on the common portal.
3) By proper officer:- As per rule 6(4) Where the proper officer has reasons to believe that the registered person was not eligible to pay tax under section 10 or has contravened the provisions of the Act or provisions of this Chapter, he may issue a notice to such person in FORM GST CMP-05 to show cause within fifteen days of the receipt of such notice as to why the option to pay tax under section 10 shall not be denied.
4) Up on receipt of show cause notice in form CMP-05, a registered person is required to make response within fifteen days in form FORM GST CMP-06.
5) Up on receipt of response by proper officer from registered person, the proper officer shall issue an order in FORM GST CMP-07 within a period of thirty days of the receipt of such reply, either accepting the reply, or denying the option to pay tax under composition scheme under section 10 from the date of the option or from the date of the event concerning such contravention, as the case may be.
6) After filing of intimation for withdrawal from composition scheme, a registered person shall file a statement in FORM GST ITC-01 containing details of the stock of inputs and inputs contained in semi-finished or finished goods held in stock by him on the date on which the option is withdrawn or denied, within a period of thirty days from the date from which the option is withdrawn or from the date of the order passed in FORM GST CMP-07, as the case may be.
SUMMARY:-
Section 10 of CGST Act, 2017:- Composition Scheme.
Rule 3:- Intimation for composition levy. (Registration)
Rule 4:- Effective date for composition levy. (Beginning of the financial year)
Rule 5:- Conditions and restrictions for composition levy.
Rule 6:- Validity of composition levy.
Rule 7:- Rate of tax of the composition levy.
Form CMP-08:- Self assessed Tax under composition scheme.
GSTR 4:- GST Return once in a year.
GSTR-9A:- Annual return.
GST REG-01:- Fresh registration for composition scheme.
GST CMP-02:- A registered person apply for opting of composition scheme.
GST CMP-04:-Voluntary withdrawal from composition scheme.
GST CMP-05:-Notice by proper officer.
GST CMP-06:-Response to proper office.
GST CMP-07:-Order of proper officer.
GST ITC-03:- ITC in relation to closing stock of input, semi finished goods, finished goods, capital goods.
Note:- Sincere efforts have been made to make this article without any error. In case of any errors that you may want to bring to the notice of the author, queries or suggestions, the author may be reached at the following mail addresses,
E mail:- harkhani123@gmail.com
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