Earlier we have discussed the Key points of Composition Scheme under Revised Model GST law. Many persons have raised questions regarding Composition levy/scheme so we have complied FAQ on Composition scheme as per Revised MGL .
Section 9 of Revised Model GST Law (MGL) is dealing the composition scheme.Section 9 of said act has been reproduced hereunder.
(1) Notwithstanding anything to the contrary contained in the Act but subject to sub-section (3) of section 8, on the recommendation of the Council, the proper officer of the Central or a State Government may, subject to such conditions and restrictions as may be prescribed, permit a registered taxable person, whose aggregate turnover in the preceding financial year did not exceed fifty lakh rupees, to pay, in lieu of the tax payable by him, an amount calculated at such rate as may be prescribed, but not less than two and a half percent in case of a manufacturer and one percent in any other case, of the turnover in a State during the year:
- (a) who is engaged in the supply of services; or
- (b) who makes any supply of goods which are not leviable to tax under this Act; or
- (c) who makes any inter-State outward supplies of goods; or
- (d) who makes any supply of goods through an electronic commerce operator who is required to collect tax at source under section 56; or
- (e) who is a manufacturer of such goods as may be notified on the recommendation of the Council:
PROVIDED FURTHER that no such permission shall be granted to a taxable person unless all the registered taxable persons, having the same PAN as held by the said taxable person, also opt to pay tax under the provisions of this sub-section.
(2) The permission granted to a registered taxable person under sub-section (1) shall stand withdrawn from the day on which his aggregate turnover during a financial year exceeds fifty lakh rupees.
(3) A taxable person to whom the provisions of sub-section (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.
(4) If the proper officer has reasons to believe that a taxable person was not eligible to pay tax under sub-section (1), such person shall, in addition to any tax that may be payable by him under other provisions of this Act, be liable to a penalty and the provisions of section 66 or 67, as the case may be, shall apply mutatis mutandis for determination of tax and penalty.
FAQ on Composition Scheme under GST
- Q What is the scope of composition scheme under GST?
- Ans. Small taxpayers with an aggregate turnover in a financial year up to [Rs. 50 lakhs] shall be eligible for composition levy. Under the scheme, a taxpayer(not a service provider) shall pay tax as a percentage of his turnover during the year without the benefit of ITC. Tax rate as may be prescribed, but not less than two and a half percent in case of a manufacturer and one percent in any other case A tax payer opting for composition levy shall not collect any tax from his customers.
- Q What is the threshold for opting to pay tax under the composition scheme?
- Ans. The threshold for composition scheme is Rs. 50 Lakhs of aggregate turnover in financial year.
- Q How to compute ‘aggregate turnover’ to determine eligibility for composition scheme?
- Ans. The methodology to compute aggregate turnover is given in Section 2(6). “aggregate turnover” means the aggregate value of all taxable supplies, exempt supplies, exports of goods and/or services and inter-State supplies of a person having the same PAN, to be computed on all India basis and excludes taxes, if any, charged under the CGST Act, SGST Act and the IGST Act, as the case may be;
- Q Whether the composition scheme may be opted by Supplier of service ?
- Ans. No ,Supplier of services is not eligible for composition scheme
- Q Whether the composition scheme will be optional or compulsory?
- Ans. Optional.
- Q What is the minimum rate of tax prescribed for composition scheme?
- Ans. Effective Tax rate as may be prescribed, but not less than two and a half percent in case of a manufacturer and one percent in any other case
- Q . Will a taxable person be eligible to opt for composition scheme only for one out of 3 business verticals?
- Ans. No, composition scheme would become applicable for all the business verticals/registrations which are separately held by the person with same PAN
- Q . Can composition scheme be availed if the taxable person effects inter-State supplies?
- Ans. No, composition scheme is applicable subject to the condition that the taxable person does not affect interstate supplies.
- Q Can the taxable person under composition scheme claim input tax credit?
- Ans. No, taxable person under composition scheme is not eligible to claim input tax credit.
- Q Can the customer who buys from a taxable person who is under the composition scheme claim composition tax as input tax credit?
- Ans. No, customer who buys goods from taxable person who is under composition scheme is not eligible for composition input tax credit because a composition scheme supplier cannot issue a tax invoice
- Q Can composition tax be collected from customers?
- Ans. No, the taxable person under composition scheme is restricted from collecting tax. It means that a composition scheme supplier cannot issue a tax invoice.
- Q When is payment of taxes to be made by the Supplier?
- Ans Composition tax payers will need to pay tax on quarterly basis. Timing of payment will be from 0000 Hrs to 2000 Hrs.
- Q What are the penal consequences if a taxable person violates the condition and is not eligible for payment of tax under the Composition scheme?
- Ans. Taxable person who was not eligible for the composition scheme would be liable to pay tax, interest and in addition he shall also be liable to a penalty equivalent to the amount of tax payable.
- Q Mr. B, a registered taxable person was paying tax under composition rate up to 30th July, 2017. However, w.e.f 31st July, 2017. Mr. B becomes liable to pay tax under regular scheme. Is he eligible for ITC?
- Ans. Mr. B is eligible for input tax credit on inputs held in stock and inputs contained in semi-finished or finished goods held in stock as on 30th July,2017.
- Q Do tax payers under the composition scheme also need to file GSTR-1 and GSTR-2?
- Ans. No. Composition tax payers do not need to file any statement of outward or inward supplies. They have to file a quarterly return in Form GSTR-4 by the 1st of the month after the end of the quarter. Since they are not eligible for any input tax credit, there is no relevance of GSTR-2 for them and since they do not pass on any credit to their recipients, there is no relevance of GSTR-1 for them. In their return, they have to declare summary details of their outward supplies along with the details of tax payment. They also have to give details of their purchases in their quarterly return itself, most of which will be auto populated.
- Q Do tax payers under the composition scheme also need to file Annual Return?
- Ans. No. Composition tax payers do not need to file an annual return.
- Q A registered taxable person has Rs 1000 ITC credited to his electronic credit ledger from the last return under the earlier law. Now, he switches over to composition scheme in GST, will he get refund of that ITC?
- Ans. No. He shall have to pay an amount equivalent to the credit of input tax on inputs held in stock on the day immediately preceding the date of switchover. The amount can be paid either through the electronic credit ledger or the electronic cash ledger. Where payment is made through the electronic credit ledger, excess ITC balance lying, if any, will lapse.
- Q What is the penalty prescribed for a person who opts for composition scheme despite being ineligible for the said scheme?
- Ans. MGL provides that if a person who has opted for composition of his tax liability is found as not being eligible for compounding then such person shall be liable to penalty to an amount equivalent to the tax payable by him under the provisions of the Act i.e. as a normal taxable person and that this penalty shall be in addition to the tax payable by him.
If you have a question then ask in Comment section.