Examples of Businesses who use GST Composition Scheme are Retailers, Restaurants, Canteens etc. Dealers under Composition Scheme cannot import or export goods and services.
Composition options contain conditions (varies from State to State) such as:
(a) such dealer maintains separate account of each type of his business;
(b) the total turnover is limited/ in some cases not limited;
(c) the amount payable by way of composition is lower;
(d) dealer has to exercise the option for the whole year;
(e) dealer would not be able to avail the credit of inputs;
(f) in some States he cannot collect tax from his customers.
Composition Levy under GST
Section 9 of the CGST/SGST Act:
The Proper Officer would permit a registered taxable person whose aggregate turnover in the previous year was less than Rs. 50 lakhs to pay:
• Not less than 2.5% of the turnover in a State, in case of a manufacturer,
• Not less than 1% in other cases (in case of others i.e. traders),
a. A service supplier cannot opt for this scheme.
b. Permission will not be granted to a person, who makes any supply of goods, which does not attract GST levy.
c. Such a person should not have Inter-State supply of goods.
d. He should not make supply through an e-commerce operator, who is required to collect tax at source in terms of section 56.
e. The aggregate turnover should be upto Rs. 50 lakhs.
f. He should not avail any credit.
g. Permission would be refused to a manufacturer of notified goods upon recommendation by GST Council.
h. The scheme should also be opted by all taxable persons having the same PAN as held by the taxable person.
1. The option of composition levy is available to a registered taxable person but it may make him less competitive when dealing with businesses due to the restriction on availing and passing on the tax burden.
2. Tax payable under reverse charge mechanism would still be payable.
3. Permission of the proper officer is required for availing the option of composition scheme. This could pose difficulties considering the past experience.
4. If the proper officer has reason to believe that such a person is not eligible for this scheme then he may impose penalty. This would be in addition to the tax payable under other provisionsvand interest liability.
5. In such an event admissibility of credit is not clearly spelt out in the proposed provisions.
Benefits of scheme:
The advantages or benefits of the scheme should be examined should be analyzed on a case to case basis. Following are the illustrative benefits:
• It is simple to understand.
• The person opting for the scheme has to file returns and make payments on quarterly basis.
• Cost saving benefits would accrue.
• Minimum records are required to be maintained as compared to a regular assessee.
• It is more suitable for making direct supplies to consumer/customer.
The major disadvantage is that no GST can be charged in the invoice and credit chain is lost.GST paid on inputs will become a cost and hence it is difficult to sustain competition in the industry, considering the high tax rates, which would prevail in GST regime.
Transitional provision- Section 172;
As per this transition provision, credit of eligible duties and taxes on inputs held in stock is allowed to a taxable person switching over from composition scheme voluntarily or on crossing of Rs. 50 lakhs. The conditions prescribed are (i) such inputs/goods are intended for making taxable supplies under GST law; (ii) he is eligible for input credit on inputs under the GST law; (iii) has tax paid/ prescribed documents which were issued not earlier than one year before the effective date of GST law (iv) the eligible credit should be calculated in a prescribed manner.
a. Aggregate turnover.
Section 2(6) of the CGST / SGST Act, 2016 ‘aggregate turnover’ means ‘value of all (taxable, exempt and export supplies and inter-State supplies) – (Taxes + Value of inward supplies + Value of supplies taxable under reverse charge) of a person having the same PAN and has to computed on all India basis for the relevant financial year.
b. Integrated Goods and Services Tax (IGST) – Section 2(14) of IGST Act
IGST means the tax levied under the IGST Acton the supply of any goods and/or services in the course of inter-State trade or commerce.
• Composition dealer is not eligible to avail the credit of input tax paid.
• He is not entitled to effect inter-state supply of goods.
• Composition dealer is not eligible to collect tax.
• It would be applicable for all the business verticals / registrations which are separately held by the person with same PAN.
Relaxation in Procedures:
• Tax & return period would be on quarterly basis.
• Due date for payment and filing of return would be in month succeeding the particular quarter.
• It is beneficial only for those who are making direct supply to end consumers/customers.
The restrictions imposed by the scheme do not make it an attractive alternative for the tax payers. Further the tax payers should take a measured decision by weighing the pros and cons of opting for the scheme including financial viability.
The overall Composite Scheme has remained the same along with its concepts, when compared to old VAT and GST Law. In the first GST Draft, the Composition Scheme was deleted but was again inserted in the draft bill that was approved in the parliament.