Tax

Composition Scheme Rules under GST

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

I. Intimation and Effective Date for Composition Levy

1. For person already registered under pre-GST regime

Any person who has been granted registration on provisional basis (registered under VAT Act, Service Tax, or Central Excise Laws, etc.) and who opts for composition levy will be required to file an intimation in FORM GST CMO – 01 which should be duly filled and signed before or within 30 days of the appointed date. If the intimation is filed after the appointed day, the registered person will have to do the following

  • The person will not collect taxes
  • Issue bill of supply of supplies

FORM GST CMP -03 should be also filed within 60 days of exercise option

  • Stock details
  • Inward supply of goods received from the unregistered persons held by him on the date preceding the day of exercise option.

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

For fresh registrations under this scheme, intimation in FORM GST REG – 01 will be required to be filled.

3. An individual registered under GST switched over to Composition Scheme

All the registered individuals under the GST, who opt to pay taxes under Composition Scheme must follow the following set of instructions:

  • Intimation in FORM GST CMP -02 for exercise option as per notification no. 45/2016 of the Central Tax dated 13th October 2017
  • Statement in FORM GST ITC -3 for details of ITC relating to inputs lying in the stock, the inputs contained in the semi-finished or the finished goods within 60 days of commencement of relevant financial year.

FACTS About Composition Scheme

  • The composition scheme will be application from the 1st day of the commencing month. For example: if a registered tax payer submits the form on 15th October then the composition scheme will be applied from 1st November onwards
  • The option to opt for composition scheme has been extended up to 31st March 2018
  • FORM GST ITC -03 should be submitted within 90 days from the date of levy of the composition scheme
  • TRAN-1 should be filled before the FORM GST ITC – 03 has been furnished.
  • If a registered person opts to pay tax under the composition scheme with effect from the 1st day of the month which is not the first month of the quarter (such as 1st November as mentioned in our example) then he will have to file GSTR-4 return for that quarter (which is the quarter of October to December as per the example mentioned above). For the previous quarters before the composition scheme (July to September) he will have to file normal returns.

II. Effective Date For Composition Levy

A. The option to pay tax under Composition Scheme is effective for following

  • For individuals already registered under the pre-GST regime: Appointed Day
  • For individuals registered under GST and person switches to Composition Scheme: Filing of Intimation

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

Option to pay tax under Composition Scheme shall be effective from

  • Where the application for registration has been submitted within thirty days from the day he becomes liable for registration, such date.
  • In the above case, the effective date of registration shall be the date of grant of registration.

C. Conditions and Restrictions for Composition Levy

1. The person who opts for the scheme should not be a casual taxable person or a non-resident taxable person.

2. The goods held by him in stock on the appointed date must not be purchased from a place outside his state. The goods should therefore not be classified as

  • Interstate purchase
  • Imported Goods
  • Branch situated outside the State
  • Agents or Principal situated outside the State

3. Mandatory display of invoices of the words “composition taxable person, not eligible to collect tax on supplies”.

4. Mandatory display of the words “Composition Taxable Person” on every notice and signboard displayed at a prominent place.

5. He is not a manufacturer of such goods as may be notified by the Government during the preceding financial year.

D. Validity of Composition Levy

It depends on the fulfillment of conditions (discussed above), however, an eligible person for scheme may also opt out of the scheme by filing an application. In case Proper Officer has reasons to believe that taxpayer is not eligible for the scheme or contravened any Rules or ACT, he may issue show cause notice followed by an order denying the entailment of the scheme.

VALIDITY OF COMPOSITION LEVY

Condition Satisfied Condition Not Satisfied Self Withdraw Proper Officer has Reasons to Believe
Option remain valid
  • Pay tax as anormal tax payer
  • Issue Tax Invoice for taxable Supply
  • Within 7 days file FORM GST CMP-04 as Intimation
  • Before the date of withdrawl
  • File an application in FORM GST CMP-04
  • Taxpayer not eligible or contravened Act of Rules
  • Issue of Show cause notice in FORM GST CMP-05
  • Within 15 days taxpayer must file reply in FORM GST CMP-06
  • Issue of Order with 30 days in FORM GST CMP-07

E. Rate of Tax

The rate of tax prescribed for different categories of registered persons have been described below

Composition Scheme- Applicable GST Rate

Type of Business CGST SGST Total
Manufacturer and Traders(Goods) 0.5% 0.5% 1.0%
Restraurants not serving alcohol 2.5% 2.5% 5%

F. Composition Scheme Rules under GST- Compliance

Composition Scheme Rules under GST provides for submission of different forms meant for respective purposes followed by due date for submission of such forms, which are as follows

From Required Purpose Due Date
FORM GST CMP-01 To opt for scheme by provision registration holder Prior to appointed date or within 30 days of the side date
FORM GST CMP-02 Intimation of willing ness to opt for scheme Prior to commencement of Financial Year
FORM GST CMP-03 Details of stock and inward supplies from Unregistered Person Within 90 days of exercise of option
FORM GST CMP-04 Intimation of withdrawl from scheme Within 7 days of occurence of event
FORM GST CMP-05 Show Cause Notice on contravention of rules or Act by Proper Officer On contravention
FORM GST CMP-06 Reply to Show Cause Notice Within 15 days
FORM GST CMP-07 Issue of Order Within 30 days
FORM GST REG-01 Registration under Composition scheme Prior to appointed date
FORM GST ITC-01 Details of inputs in stocks, semi-finished and finished goods 30 days of option withdrawn
FORM GST ITC-13 Intimation of ITC available Within 60 days of commencement of Financial Year

All the above-mentionedforms must be duly signed and filed electronically on Common Portal, either directly or through a Facilitation Centre notified by the Commissioner.

Conclusion

Any person who opts for this 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 the scheme.

Composition Scheme Rules under GST have been targeted to be strict and crisp for the persons availing the Composition Scheme.