FAQ on Composition Scheme under GST

By Naman Kumar Jain

Q1. What is the eligibility criteria for opting Composition Scheme under GST Law?

Ans. As per Section 8 of Model GST Law, a Registered taxable person, whose Aggregate Turnover* in a financial year does not exceed fifty lakh of rupees can avail Composition Scheme.

*Aggregate Turnover means ‘Value of all (taxable and non-taxable supplies + Exempt supplies + Exports) – (Taxes + Value of inward supplies + Value of supplies taxable under reverse charge) of a person having the same PAN.

Q2. What is the rate of tax under Composition Scheme?

Ans. Rate of tax shall be such  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.

Q3. Who all are the persons not eligible for opting Composition Scheme?

Ans. Composition Scheme shall not be granted to a taxable person:-

  1. who is engaged in the supply of services; or
  2. who makes any supply of goods which are not leviable to tax under this Act; or
  3. who makes any inter-State outward supplies of goods; or
  4. who makes any supply of goods through an electronic commerce operator who is required to collect tax at source under section 56; or
  5. who is a manufacturer of such goods as may be notified on the recommendation of the Council

Q4. What is PAN Based Composition Scheme?

Ans.  Under GST Law Composition Scheme is PAN Based i.e., all the units having same PAN shall assess   under this scheme, that is, if any one of the units wishes to assess under regular scheme not under this scheme then all other units would be ineligible for composition scheme. Thus It must be noted that a taxable person cannot opt for payment of taxes under composition scheme say for supply of goods and opt for regular scheme of payment of taxes for supply of services.

This can be understood with the help of an example:-

Say a taxable person has the following business verticals separately registered:

  • Sale of Towels
  • Sale of Furniture
  • Franchisee of Pizza Hut

In the above scenario, the composition scheme would be applicable for all the 3 business verticals. Taxable person will not be eligible to opt for composition for sale of Towels and sale of Furniture and opt to pay taxes under the regular scheme for franchisee of Pizza Hut.

Q5.  What are the features of Composition Scheme under GST Law?

Ans.

  1. No Input Tax Credit:-A taxable person covered under the Composition Scheme of GST shall not be entitled to any credit of input tax .Consequently; recipient will not get any credit of tax paid by supplier under this scheme.
  2. Collection of GST not permitted: – A taxable person covered under the Composition Scheme of GST can not collect any tax from the recipient on supplies made by him.

Q6. What are the provisions regarding filling of Return under Composition Scheme of GST Law?

Ans. Under Composition Scheme return (GSTR-4) shall be filed on Quarterly basis and the due    date for the payment of tax and filling of return shall be 18th of month succeeding the particular quarter. For example, for the quarter ending 30th June 2017 (Apr-Jun 2017) due date will be 18th July 2017.

Q7. How to get registered under Composition Scheme of GST Law?

Ans. Application for Registration under Section 19(1) of Goods and Services Tax Act, can be made in GST REG 01. For availing Composition Scheme under GST. A declaration has to be made in GST Registration.

Also any existing taxpayer not under Composition Scheme may choose to opt for it (subject to being qualified), only from the beginning of the next Financial Year. The application will have to be filed on or before 31st March of the Previous Year so that so that returns can be filed accordingly. Dealers under Composition Scheme may be allowed to switch over to normal scheme even during the year if they want to. However, they cannot switch over to Composition Scheme again during the same Financial Year.

Q8. What is the impact on Input Tax Credit during transition between Regular Scheme and Composition Scheme?

Ans.  Transition from Composition Scheme to Regular Scheme

Section 16(3) of Model GST Law states that when a taxpayer ceases to pay composition tax and becomes liable to pay tax as a regular taxpayer under GST then he is eligible to take Input Tax Credit in respect of inputs held in stock and inputs contained in semi-finished and finished goods held in stock as on the day immediately preceding the day from which he becomes liable to pay tax under regular scheme.

Transition from Regular Scheme to Composition Scheme

As per section 16(12) of Model GST Law, when a taxpayer liable to pay tax as a regular taxable person switches over as a taxable person for paying tax under section 8 (GST Composition Scheme), then he needs to pay an amount by way of debiting in the electronic credit /cash ledger equivalent to Input Tax Credit in respect of inputs held in stock and inputs contained in semi- finished and finished goods held in stock as on the day immediately preceding the day of such switch over.

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