All about Composition Scheme under GST
Composition Scheme was introduced under the GST regime to provide benefits to small businesses. Thus, an option has been provided where they can opt to pay a fixed percentage of turnover in lieu of tax. Person opting for composition scheme will be relieved from detailed compliances required under GST law. Further, the Government vide Notification No. 02/2019 has provided an option of 6% tax rate on first supplies of goods or services or both upto an aggregate turnover of fifty Iakh rupees made on or after the 1st day of April in any financial year. Question is if an applicant being supplier of both goods and services being 2 distinct business can avail both benefits of composition scheme as well as the scheme provided under the notification by separating the goods under composition scheme and the services under 6% of in accordance with the notification.
Features of the Composition Scheme are as follows:-
- Businesses with annual turnover up to Rs 1.5 crore in the preceding financial year can opt for composition scheme.
- Service providers with aggregate turnover not exceeding Rs 50 lakh in the preceding financial year can opt for composition scheme.
- Turnover of all businesses with same PAN has to be added up to calculate turnover for the purpose of composition scheme.
- Only manufacturers of goods, dealers, and restaurants (not serving alcohol) can opt for composition scheme.
- The Composition Scheme person is required to file GST CMP 08 quarterly on the GST website and GSTR 4 annual return on 30th April after end of every Financial Year
- What is the rate of tax of Composition Levy?
Rule 7 of the CGST Rules, 2017, prescribes the rate of tax under composition levy.
The category of registered persons, eligible for composition levy under section 10 shall pay tax at the rate specified in the below mentioned table:-
|Sr No||Category||Rate of tax|
|1||In case of manufacturer||0.5% of the turnover in the State or Union territory|
|2||In case of food and restaurant services||2.5% of the turnover in the State or Union territory|
|3||In case of any other suppliers (traders, agents)||0.5% of the turnover of taxable supplies of goods and services in the State or Union territory|
Can a person supplying services pay tax under composition levy?
Section 10(2A) was inserted by the Finance (No. 2) Act, 2019. According to Section 10(2A), a registered person, not eligible to opt to pay tax under sub-section (1) and sub-section (2), whose aggregate turnover in the preceding financial year did not exceed Rs 50 lakhs, may opt to pay, in lieu of the tax payable by him under section 9(1), an amount of tax calculated at such rate as may be prescribed, if he is not:-
- engaged in making any supply of goods or services which are not leviable to GST
- engaged in making any inter-State outward supplies of goods or services;
- engaged in making any supply of goods or services through an electronic commerce operator who is required to collect tax at source under section 52
- manufacturer of such goods or supplier of such services as may be notified by the Government on the recommendations of the Council
- casual taxable person or a non-resident taxable person
Therefore, Section 10(2A) permits service providers to be included under Composition levy.
Amendments by CBIC vide Notification No. 50/2020-Central Tax Dated 24th June, 2020.
CBIC amended Rules 7 of the CGST Rules 2017 with a new entry for Composition tax payers who are providing services to be taxed at rate of 6% (CGST – 3% & SGST/UTGST – 3%) vide Notification No. 50/2020-Central Tax Dated 24th June, 2020.
In Rule 7 of Central Goods and Services Tax Rules, 2017, the following entry has been added – Registered persons not eligible under the composition levy under sub-sections (1) and (2), but eligible to opt to pay tax under section 10(2A) to be taxed at 3% of the turnover of taxable supplies of goods and services in the State or Union territory.
What do you mean by aggregate turnover?
“Aggregate Turnover” means the aggregate value of all:-
- taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis)
- exempt supplies
- exports of goods or services or both
- inter-State supplies of persons having the same Permanent Account Number
Aggregate Turnover is to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess.