Tuesday, July 11, 2017

Composition Scheme Rules under GST

Composition Scheme Rules under GST provide for all the procedural compliance w.r.t. intimation for Composition Scheme, effective date for levy, conditions and restrictions on levy, validity of levy and rate of tax.

The current state indirect tax regime has provided a simpler compliance for small dealers known as the Composition Scheme. Under this scheme you,
  • Pay taxes only at a certain percentage of turnover
  • File periodic returns only (usually on a quarterly basis)
  • Have an option of not having to maintain detailed records or follow tax invoicing rules
  • Are not allowed to take Input Tax Credit (ITC)
  • Are not allowed to collect tax on sales

A. Intimation and Effective date for Composition Levy

1.   For persons already registered under pre-GST regime

Any person being granted registration on a provisional basis (registered under VAT Act, Service Tax, Central Excise laws etc) and who opts for Composition Levy shall file an intimation in FORM GST CMP-01, duly signed, before or within 30 days of appointed date. If intimation is filed after the appointed day, the registered person:
a) Will not collect taxes
b) Issue bill of supply for supplies
FORM GST CMP- 03 must also be filed within 60 days of exercise of option:
a) Details of stock
b) Inward supply of goods received from unregistered persons held by him on the date preceding the day of exercise of option.

2. For persons who applied for fresh register under GST to opt scheme

For fresh registration under the scheme, intimation in FORM GST REG- 01 must be filed.

3. Registered under GST and person switches to Composition Scheme

Every registered person under GST and opts to pay taxes under Composition Scheme, must follow the following:
a) Intimation in FORM GST CMP- 02 for exercise option
b) Statement in FORM GST ITC- 3 for details of ITC relating to inputs lying in stock, inputs contained in semi-finished or finished goods within 60 days of commencement of the relevant financial year

b. Conditions for a Composite Tax Payer

Apart from the threshold limit, the following conditions are applicable for a composite tax payer:
  • Cannot be engaged in supply of services, other than supply of food or drinks for human consumption
  • Cannot be engaged in manufacture of specific notified goods
  • Cannot supply goods not taxable under GST
  • Cannot supply goods through an e-commerce operator
  • No Interstate outward supplies – A composite tax payer should not engage in interstate outward supply of goods and / or services .
  • Payment of composition tax – If the composite tax payer is in the trade of supplying goods and services, then composition levy will be applicable for both supply of goods and supply of services.
  • Does not have to collect tax – The composite tax payer does not have to collect tax on all his outward supply of goods and / or services.
  • Applicable for all business verticals under the same PAN – Composition levy will be applicable for all business verticals operating within state or interstate under the same pan.
  • What does this mean?
  • An individual with different business verticals, like:
  • Mobiles & Accessories
  • Stationery
  • Franchisee
In the above scenario, the composition scheme will be applicable for all three business verticals. The dealer cannot opt for any one business vertical to fall under the composition scheme. For example, if the business vertical’s place of business is in Karnataka & Kerala for a single PAN, each of the business vertical in that particular state should have only ‘Intra-State(within state)’ supplies.
  • Cannot claim Input Tax Credit – The composite tax payer is not eligible to claim input tax credit on all his inward supply of goods and / or services.
  • What does this mean?
  • If a dealer chooses to be a composite tax payer, he cannot claim input tax credit even if he makes taxable purchases from a regular taxable dealer. Ideally, the taxable amount would be added to the composite tax payer’s cost.
  • Conclusion
Any person who opts for the scheme will be deemed to have been opted for all the places of business having the same registered PAN. Hence, you may not choose any one of all the place of business to be registered under scheme.
Composition Scheme Rules under GST have been targeted to be strict and crisp for the persons availing the Composition Scheme.
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