In this article, we are going to discuss, GST Composition scheme in the light of the introduction of Section 10(2A) by which services providers have also become eligible for the composition scheme. So there are two schemes of the composition, one prescribed by section 10(1) and other prescribed by section 10(2A) w.e.f. 01/01/2020. In this article, we will have a comparative analysis of both schemes of the composition for a better understanding of the users. (Based on provision as applicable on 01/04/2020)
In this article, we are going to cover the following points.
- Who is eligible for the composition scheme?
- Who are not eligible/other conditions for the composition scheme?
- Composition Tax Rate.
- How can the Taxpayer Opt for the composition scheme?
- What procedure to be followed?
- Is composition dealer eligible for the ITC?
- Whether composition dealer liable for the Reverse Charge Mechanism?
- Can he collect tax from the customers?
- Conclusion
1. Who is Eligible for the Composition scheme?
| As per the provisions of Section 10(1) as amended from time to time. |
As per the provisions of section 10(2A) w.e.f. 01/01/2020 |
| Who can Apply?
Manufacturer (Other then Notified Goods.)
Trader
Restaurant / outdoor caterer
(Value of the service should not exceed the prescribed limit) |
Any person who is not eligible under scheme one can opt for this scheme. Most of the service providers can take benefit from the scheme. |
| Any person is eligible for this scheme if his
Aggregate Turnover from Goods during the preceding financial year does not Rs. 150 Lakhs ( for the special category states the limit of the turnover is Rs. 75 Lakhs.)
Only Supplier of goods are eligible under this scheme of the composition
Exception - restaurant and outdoor caterers being service provider are eligible for the composition scheme
Vide Notification No 5/2019 w.e.f. 1/2/2019 – Any eligible supplier with a value of supply of service being less than 10% of the aggregate turnover of the preceding financial year or less than Rs. 5 lakhs is also eligible under this composition.
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Any person is eligible for this scheme if his Aggregate turnover from Goods /services / both does not exceed during the preceding financial year more then Rs. 50 Lakhs.
Thus supplier who is ineligible for the composition scheme U/s 10(1) can be covered under these provisions for the composition.
The provision in this section is similar to the provisions contained N/N 2/2019 CT Rate Dated 07/03/2019.
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2. Who are not eligible/other conditions for the composition scheme?
Ineligibility or other conditions to be satisfied for the composition scheme are as tabled below:
| Sr. |
As per the provisions of Section 10(1) as amended from time to time. |
As per the provisions of section 10(2A) w.e.f. 01/01/2020 |
| 1 |
A supplier should neither be a Casual Taxable person nor a Non-Resident Taxable Person. |
| 2 |
He Should not engage in the supply of alcoholic liquor for human consumption or any of the 5 petroleum products mention in section 9 (petroleum crude, high-speed diesel, motor spirit, natural gas, and aviation turbine fuel) cannot opt for composition scheme for any of his other GST supplies. |
| 3 |
He should not make supplies through an E-Commerce operator who is liable to collect tax at source u/s 52. |
| 4 |
Composition dealers cannot make Inter-state outward supply (Supply outside the state) of the goods, including branch transfer to their own branches outside the state.
– There is no restriction on inter-state inward supplies.
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| 5 |
HSN Code - Description
2105 00 00 - Ice cream and other edible ice, whether or not containing cocoa.
2106 90 20 - Pan masala
2202 10 10 - Aerated water
24 - Tobacco and manufactured tobacco substitutes.
Under this scheme, if the person is engaged in the trading of the above goods he is eligible for the composition scheme.
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Not Engaged in Manufacture / Supply of the Notified Goods –
HSN Code - Description
2105 00 00 - Ice cream and other edible ice, whether or not containing cocoa.
2106 90 20 - Pan masala
2202 10 10 - Aerated water
24 - Tobacco and manufactured tobacco substitutes.
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| 6 |
Not engaged in the provision of the services in the preceding financial year, the value of which is more than 10% of the aggregate turnover of the preceding financial year.(Except – Restaurant & Outdoor Catering services) |
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| 7 |
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The taxable person should not be engaged in the supply of the services as may be notified.
(Services are yet to be notified for the purpose by the GST council) |
3. Composition Tax Rate
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As per the provisions of Section 10(1) as amended from time to time.
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As per the provisions of section 10(2A) w.e.f. 01/01/2020
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Category of the Persons
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Tax Rate
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Value on which tax is payable
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Manufacturer
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0.5% - CGST
0.5% - UT/SGST
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On Total Turnover
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Restaurant & Outdoor Caterers
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2.5% - CGST
2.5% - SGST
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On Total Turnover
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Traders
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0.5% - CGST
0.5.% - UT/SGST
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On Taxable Supplies Only
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Services
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0.5% - CGST
0.5.% - UT/SGST
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On Taxable Supplies Only
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Tax Rate for this scheme are –
3% - CGST
3% - UT/SGST
On Total Turnover.
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4. How can a Taxpayer Opt for the composition scheme?
If you are registering yourself under GST, while making an application for the GST Registration you can select for the ‘Registration under the Composition’ scheme option.
If you are the existing Regular Registered dealer, you can opt for the composition scheme by filling CMP – 02 before the end of the financial year (i.e. 31 st March ) for next year. It is apparent to note here that due COVID – 19, the last date for opting for the composition scheme has been extended up to 30th June 2020.
If you are the composition dealer, you need not inform the GST department on year on year basis. The option will remain the same on year on year basis till the time you apply for opt-out of the composition scheme.
5. What procedure to be followed & Returns to Filed?
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On Invoice
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He should mention on the face of the invoice that - ‘Composition Taxable person Not Eligible to Collect Tax’
Composition dealer is neither allowed to collect GST nor he allowed show the GST separately in the invoice he issues to customers.
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On Sign Board
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Mention the words on ever signboard/notices
‘Composition Taxable Person’ along with you GST No'
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GST-CMP-08
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It is quarterly return to be filed by the 18th of the month after the end of the quarter.
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GSTR – 4
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Annual Return to be filed by composition registered person by 30th April after the end of the year.
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GSTR – 9A
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Annual Return to be filed by the Composition Registered person by the 30 Sept after the end of the financial year.
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6. Is composition dealer eligible for the ITC?
No, the composition registered person is not eligible for the Input Tax Credit on the purchase of goods or services from the person registered under the GST.
Also, the customer who purchases goods from the composition dealers will not get the input tax credit of GST paid by him on the said purchases.
7. Whether composition dealer liable for the Reverse Charge Mechanism?
Yes, Composition taxable person is also liable for payment of taxes under Reverse Charge Mechanism of the GST as per provisions section 9(4) at per the GST tariff rates for supplies of these goods or services. Further, he is not eligible to take the Input Tax Credit of the taxes paid under RCM by him. There was lots of confusion amongst the taxpayers regarding this provision, but now this is the settled provision of the law.
8. Can he collect tax from the customers?
Composition Taxable person is not allowed to collect the taxes from customers separately.
9. Conclusion
Therefore one needs to take precautions while opting for the composition option. One may consider the following points before opting in or opting out for the composition scheme of GST.
- Composition taxable person has fewer compliances as compared to that of the regular taxable person. Like quarterly filing of returns and payment of GST tax, relaxation in terms of documents to be maintained as compared to the regular registered persons.
- Though for the restaurants, GST rates under the composition and under the regular scheme are the same, but opting for the composition scheme will reduce the compliance burden of such dealers. Again if the restaurant is selling goods through the electronic commerce operator, then he is not eligible for the composition scheme.
- One must also need to consider the type of customer he is dealing with. If you have more B2B customers, it is advisable not to go for the composition scheme, as your customers will not get ITC on goods they purchase from you. It might result in the loss of business from such customers for you.
- You may also need to think about the geographical base of your customers. If you are a supplier of goods or services outside the state, you are not eligible to opt for the composition scheme. You can still opt for the composition option till the first inter-state sale transaction, as after the first inter-state transaction you have opt-out of composition scheme and intimation to that effect need to file with GSTN.
On the larger side, the composition scheme looks very attractive from the service provider perspective. Government/Council yet to notify the services which are not eligible for the composition scheme. The government will notify the services, the provider of which will not eligible for composition scheme.
Every effort has been made to make the article error-free. For the benefit of the user, it is suggested to take the help of a learned consultant before acting on the position of the law as enumerated in the article.
Image source - Economic Times