1:  What do you mean by Composition scheme?

GST brings a new impetus to tax system in India. It will be applicable to almost every assessee in business thereby boosting revenues for the government. Where large organizations have the requisite resources and expertise to facilitate GST compliances but many startups and Small and Medium Enterprises (SMEs) may struggle to comply with these provisions. To protect the interest of such small businesses, the government has introduced Composition Scheme under GST, which is merely an extension of the current scheme under VAT law.

2:  What is the eligibility criterion for opting composition scheme?

A registered person, whose aggregate turnover in the preceding financial year did not exceed specified limit, shall be eligible to opt for the composition scheme subject to certain conditions.

3:  What is the limit of aggregate turnover to avail Composition Scheme?

Taxpayers, registered in state other than special categories of states, whose aggregate turnover in the preceding financial year does not exceed Rs. 100 lakhs are eligible to opt for composition scheme. However, for following 9 special category of states, the limit of turnover is Rs. 50 lakhs:-

a) Arunachal Pradesh

b) Assam

c) Manipur

d) Meghalaya

e) Mizoram

f) Nagaland

g) Sikkim

h) Tripura

i) Himachal Pradesh

4:  How to compute ‘aggregate turnover’ to determine eligibility for composition scheme?

The methodology to compute aggregate turnover is given in Section 2(6). Accordingly, ‘aggregate turnover’ means ‘Value of all supplies (taxable and nontaxable supplies + Exempt supplies + Exports) and it excludesTaxes levied under CGST Act, SGST Act and IGST Act, Value of inward supplies + Value of supplies taxable under reverse charge of a person having the same PAN.

5:  What are the merits and demerits of composition scheme?

Composition scheme is introduced for small taxpayers to reduce number of compliances required to make on monthly basis, as under the said scheme they shall file only quarterly returns. Moreover, tax rate under composition scheme is also less than standard rates under regular GST regime thereby reducing their tax liability.

However, tax payer opting for composition scheme i.e. Composite dealer, is prohibited from making interstate supplies their by curtailing their geographical dimensions of doing business. Further, they are also not allowed to take credit of tax paid on inputs. In addition to this, they are debarred from collecting tax from their customers, consequently cannot pass the incidence of tax and have to bear the burden of tax.

6:  Who are not eligible to opt for composition scheme?

As per sub- section (2) of section 10 of CGST Act, 2017 read with sub- rule (1) of Rule 5 of CGST Rules, 2017, following are the categories of registered persons who are not eligible to opt for the composition scheme:

1. Registered person whose aggregate turnover in the preceding financial year exceeds specified threshold limit i.e. Rs. 100 lakhs;
2. Registered person is making only those supplies which are referred to in clause (b) of paragraph 6 of Schedule II;
3. Registered person making non- taxable supplies;
4. Registered person making inter- state supplies.
5. Registered person supplying goods by using e- commerce facility whereby e- commerce operator collects tax at source under section 52.
6. He is not engaged in manufacture of goods, during preceding financial year, which are notified by Government on the recommendations of the council.
7. Casual taxable person and non- resident are prohibited to opt for the composition scheme.
8. Where person registered under existing law has migrated to GST, he shall be eligible for the scheme only if goods held in stock on appointed day have not been purchased through interstate trade or imported from outside India or received from branch or agent or principal outside the state;
9. Supplier who has purchased any goods from unregistered supplier is prohibited, however, if he pays GST under- section 9(4) i.e. on reverse charge basis, then he can opt for same

7:  What are the conditions which is required to be complied by person opted for composition scheme?

As per sub- section (2) of section 10 of CGST Act, 2017 read with sub- rule (1) of Rule 5 of CGST Rules, 2017, following are the conditions which are mandatory to be complied by registered person opted for composition scheme:

1. Composition dealer is required to pay tax under section 9 (3) & (4) i.e on reverse charge basis.
2. He shall not collect any tax from the recipient on supplies made by him nor shall he be entitled to any credit of input tax.
3. He 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;
4. He 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;
5. He shall issue “bill of supply” instead of invoice

8:  Enumerate the supplies referred in clause (b) of paragraph 6 of Schedule II?

As per clause (b) of paragraph 6 of Schedule II, supply means those supplies, 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.

9:  What is the process to avail composition scheme by existing tax payer who has migrated to GST?

Where existing taxpayer has successfully migrated to GST and wants to avail composition scheme, he shall file an intimation in Form GST CMP-01, duly signed or verified through electronic verification code, on the common portal, prior to the appointed day, but not later than thirty days after the said day, or such further period as may be extended by the Commissioner in this behalf.

However, where such intimation is filed after the appointed day, the registered person shall not collect any tax from the appointed day and shall issue bill of supply for all supplies made after the said day.

10:  Is there any supporting document required to be filed along with intimation in Form GST CMP 01?

Yes, as per sub- rule 4 of Rule 3 of CGST Rules, 2017, registered person who is filing Form GST CMP 01, intimation to avail composition scheme, shall also file Form GST CMP 03, containing the details of stock, including the inward supply of goods received from unregistered persons, held by him on the day preceding the date from which he opts to pay tax under the said scheme.

Further, Form GST CMP 03 shall be filed within a period of ninety days from the date on which the option for composition levy is exercised.

11:  What is the procedure for person, who is newly registered under the GST, to opt for composition scheme?

As per sub- rule 3A of Rule 3 of CGST Rules, 2017, person who is newly registered under GST, shall electronically file an intimation in Form GST CMP-02, duly signed or verified through electronic verification code, on the common portal, prior to the commencement of the financial year for which he wants to opt for the scheme. Further, he shall also furnish the statement in Form GST ITC-03, within a period of ninety days from the commencement of the relevant financial year.

12:  Whether a person who is making an application for fresh registration under GST can apply for composition scheme simultaneously?

Yes. As per sub- rule 3 of Rule 3 of CGST Rules, 2017 any person who applies for fresh registration under the GST may specify in Part B of Form GST REG-01, application for new registration, that he opts for composition scheme and it shall be considered as an intimation.

13:  Can the option to pay tax under composition levy be exercised at any time of the year?

No. The option is required to be given electronically in Form GST CMP-02, prior to the commencement of the relevant financial year.

14:  Whether person opted for composition scheme has to file intimation every year prior to the commencement of financial year?

As per sub- rule 2 of Rule 5 of CGST Rules, 2017, the registered person paying tax under composition scheme is not required to file a fresh intimation every year.

15:  What is the validity period of composition scheme?

As per Rule 6 of CGST Rules, 2017, the person opted for composition scheme shall continue under the said scheme as long as he does not contravenes the conditions and restrictions as mentioned in section 10 of the CGST Act, 2017 and Rule 3 to 5 of the CGST Rules, 2017.

16:  What will be the effective date for composition scheme?

As per Rule 4 of CGST Rules, 2017, effective date for composition levy shall be following corresponding to their intimation:

17:  What will be the consequences, where person opted for composition scheme ceases to satisfy conditions so required under the act?

Where person ceases to satisfy the conditions required for composition scheme, he becomes liable to be taxed under section 9 (1) of the act. Further, he shall file intimation in Form GST CMP 04 within 7 days of day where he ceases to satisfy the condition. Moreover, he shall be required to issue invoice instead of bill of supply.

18:  Can a person, who opted for composition scheme, has option to voluntarily withdraw from the scheme?

Yes. The registered person who intends to withdraw from the composition scheme shall file an application in Form GST CMP-04, on common portal.

19:  Whether proper officer has power to cancel the option of composition scheme as availed by registered person?

Yes. As per sub rule 4 of Rule 6 of CGST Rules, 2017, 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, 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.

The Registered person shall make a reply in Form CMP 06. On receipt of reply, 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 section 10 from the date of the option or from the date of the event concerning such contravention, as the case may be.

20:  Is there any compliance required when registered person is no longer under the composition scheme?

Every person who has voluntarily withdrawal or who is no more eligible for composite scheme or ceases to be under the scheme pursuant to order of proper officer, may electronically furnish, 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 of ceases to be under the scheme, within a period of thirty days of filing of Form GST CMP 04 or receipt of order in Form GST CMP 07.

21:  Is there any restriction on person availing composite scheme from procuring goods from other states?

There is no restriction on procuring goods from inter-state suppliers by persons opting for the composition scheme. 

22:  What are the rates of tax for composition scheme?

The registered person who opted for composition scheme shall pay tax at preferential rate. Following is the rate for different category of persons.

23:  Is it mandatory for all registered persons who are eligible to opt for Composite scheme to avail this scheme?

No, this scheme is optional. One has to apply for and obtain permission to be covered under the scheme.

24:  What will be the consequences if turnover exceeds specified threshold limits?

As per the provisions of sub- section 3 of section 10, the option of composite scheme as availed by a registered person shall lapse with effect from the day on which his aggregate turnover during a financial year exceeds the specified limit.

25:  Whether a registered person, having multiple registrations from same Permanent Account Number (PAN), has option to opt for composition scheme for few of registrations and continue for other registrations under normal scheme?

As per the proviso of sub- section 2 of section 10 of CGST Act, 2017, where more than one registered persons are having the same Permanent Account Number, the registered person shall not be eligible to opt for the scheme unless all such registered persons opt to pay tax under the said scheme.

26:  Can a registered person, opted for composition scheme, eligible to make supplies to SEZ?

No. The supplies made to SEZ from domestic tariff area shall be treated as inter-State supply under the act and as per sub- section 2 of section 10 of CGST Act, 2017 a person opted for composition scheme cannot make inter-State outward supply of goods. Thus, supply to SEZ unit is restricted under this scheme.

27:  Can tax, required to be paid under the scheme, be collected from customers?

No, as per sub- section 4 of section 10, a taxable person, opted for composition scheme, shall not collect any tax from the recipient on supplies made by him.

28:  Can the taxable person, opted for composition scheme, eligible to claim input tax credit?

No, as per sub- section 4 of section 10, a taxable person, opted for composition scheme, is not entitled to claim any credit of input tax.

29:  Can the customer who buys from a taxable person who is under the composition scheme claim composition tax as input tax credit?

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.

30:  Can a person paying tax under the composition scheme issue a tax invoice under GST?

No, He can issue a bill of supply in lieu of tax invoice.

31:  Are monthly returns required to be filed by the person opting to pay tax under the composition scheme?

No, persons need to electronically file quarterly returns in Form GSTR-4 on the GSTN common portal by the 18th of the month succeeding the quarter.

32:  What are the penal consequences if a taxable person violates the condition and is not eligible for payment of tax under the Composition scheme?

Taxable person, who was not eligible for the composition scheme, but opted for the same would be liable to pay tax, interest and in addition to any tax that may be payable by him under any other provisions of this Act.

33:  What is the threshold limit for Composition Scheme under GST?

The Businesses or Small Taxpayers with an annual turnover upto Rs. 1.5 Crores can opt under Composition Scheme. For case of Special Category States in which turnover limit for Composition Levy for Central Tax and State Tax purpose shall be Rs. 75 Lakhs.

34:  Whether tax is payable on interest charged by the Banks on the outstanding amount of gold (metal) loan?

The Gold (Metal) Loan Scheme is a means of financing. The jewellers can purchase gold (metal) from the Banks on outright basis on payment of the price. The gold (metal) loan only provides an option to the jeweller to avail a loan and pay for gold (metal) at a future date. For this facility, the jeweller pays interest to the Bank. The grant of loan and levy of interest is dependent on the purchase of gold, and therefore, part of the same transaction or facility; therefore the interest, which is the consideration, will not be exempt as per provisions of section 15(2)(d) of the CGST Act, 2017.