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Composition Scheme in GST - GST Ready Reckoner - GSTExtract Composition Levy Scheme in GST 1. Overview of the Scheme The composition levy is an alternative method of levy of tax designed for small taxpayers whose turnover is up to Rs. 1.5 Crores (Rs. 75 lakhs in case of few States) . The objective of composition scheme is to bring simplicity and to reduce the compliance cost for the small taxpayers. Moreover, it is optional and the eligible person opting to pay tax under this scheme can pay tax at a prescribed percentage of his turnover every quarter, instead of paying tax at normal rate. 2. Benefits of composition scheme Easy compliance as no elaborate accounts and records to be maintained Simple Annual Return Quarterly payment of tax 3. Disadvantage of Composition scheme A limited territory of business, as the dealer is barred from carrying out inter-state transactions No input tax credit is available to composition dealers The taxpayer will not be eligible to supply non-taxable goods under GST such as alcohol and goods through an e-commerce portal. Threshold Limit and GST Rate Applicable in case of Composition Levy [ Section 10 of CGST Act ] Threshold Limit Section 10(1) Read with provisions of sub-sections (3) and (4) of section 9 , a registered person, whose aggregate turnover in the preceding financial year did not exceed 50 lakh rupees, may opt to pay, in lieu of the tax payable by him. As per First proviso of section 10(1) , the Government may, by notification, increase the said limit of 50 lakh rupees to such higher amount, not exceeding 1.5 crore rupees , as may be recommended by the Council. The said aggregate turnover in the preceding financial year shall be 75 lakh rupees in the case of an eligible registered person, registered under section 25 of the said Act , [ Notification No. 14/2019 Central Tax dated 7th March, 2019 ] GST Rate Applicable [ Read section 10(1) and section 10(2A) and read with Rule 7 of CGST Rules ] Rate of tax composition levy for goods [ Section 10(1) ] An amount calculated at such rate as may be prescribed, but not exceeding, Sl. No. Category of registered persons Rate of tax but not exceeding 1. Manufacturers, other than manufacturers of such goods as may be notified by the Government [ Ice cream, Pan Masala, Tobbacco products etc. Notification 14/2019-Central Tax Dated 7 th March 2019 ] One Per cent of the turnover in the State or Union territory 2. Suppliers making supplies referred to in clause (b) of paragraph 6 of Schedule II [ Restaurant Services ] two and a half per cent. of the turnover in the State or Union territory 3. Any other supplier eligible for composition levy under sub-sections (1) and (2) of section 10 half per cent. of the turnover of taxable supplies of goods and services in the State or Union territory Rate of tax composition levy for Services [ Section 10(2A) ] Sl. No. Category of registered persons Rate of tax but not exceeding 1 Registered persons not eligible under the composition levy under sub-sections (1) and (2), but eligible to opt to pay tax under sub-section (2A), of section 10 three per cent. of the turnover of taxable supplies of goods and services in the State or Union territory. Supply of services by composition dealer [ Second proviso of section 10(1) ] A person who opts to pay tax under clause a, b, c of section 10(1) (under composition Scheme) may supply of services of a) value not exceeding 10% of turnover in a state or union territory in preceding financial year, or b) Rs. 5 lakh rupees whichever is higher Example :- Mr. Ramesh is engaged in supply of mobile parts (goods). His turnover in preceding FY is Rs. 60 lakh. Since his aggregate turnover in the preceding FY does not exceed Rs. 1.5 crore, he is eligible for composition scheme for goods in current FY. Further, in current FY, he want to supply mobile repairing services along with supply of goods [other than restaurant services]. Determine the value of supply of services Mr. Ramesh can supply under Composition scheme. Mr. Ramesh (a) 10% of 60 lakh, i.e. 6 lakh or (b) 5 lakh, whichever is higher. Thus, Mr. Ramesh can supply services upto a value of Rs. 6 lakh in current FY. If the value of services supplied exceeds Rs. 6 lakh, he becomes ineligible for the composition scheme for goods and has to opt out of the same. ( Note: the rate applicable has been reduced from 2% to 1% vide Notification No. 1/2018- Central Tax dated 23.01.2018 effective 01.01.2018) Conditions and restrictions for composition levy [ Section 10(2) Read with Rule 5 of CGST Rules ] The registered person shall be eligible to opt if: (a) save as provided in section 10(1), he is not engaged in the supply of services; (b) he is not engaged in making any supply of goods or services which are not leviable to tax under this Act; [ in other words does not involve in supply of exempt category goods or services ] (c) he is not engaged in making any inter-State outward supplies of goods or services; (d) he is not engaged in making any supply of services through an electronic commerce operator who is required to collect tax at source under section 52 ; (e) he is not a manufacturer of such goods as may be notified by the Government on the recommendations of the Council; (f) he is neither a casual taxable person nor a non-resident taxable person: (g) the goods held in stock by him on the appointed day have not been purchased in the course of inter-State trade or commerce or imported from a place outside India or received from his branch situated outside the State or from his agent or principal outside the State, where the option is exercised under rule 3(1) of CGST Rule 2017 ; (h) the goods held in stock by him have not been purchased from an unregistered supplier and where purchased, he pays the tax under section 9(4) ; (i) he shall pay tax under sub-section (3) or sub-section (4) of section 9 on inward supply of goods or services or both; (j) he shall mention the words composition taxable person, not eligible to collect tax on supplies at the top of the bill of supply issued by him; and (k) he shall mention the words composition taxable person on every notice or signboard displayed at a prominent place at his principal place of business and at every additional place or places of business. The registered person paying tax under section 10 may not file a fresh intimation every year and he may continue to pay tax under the said section subject to the provisions of the Act and these rules. [ Rule 5(2) of CGST Rules ] Further where more than one registered persons are having the same Permanent Account Number (issued under the Income-tax Act, 1961), the registered person shall not be eligible to opt for the scheme under section 10(1) unless all such registered persons opt to pay tax under that sub-section. [ First proviso of Section 10(2) ] Other point to be considered The option availed of by a registered person under section 10(1) shall lapse with effect from the day on which his aggregate turnover during a financial year exceeds the limit specified under section 10(1). A taxable person to whom the provisions of section 10(1) apply shall not collect any tax from the recipient on supplies made by him nor shall he be entitled to any credit of input tax. If the proper officer has reasons to believe that a taxable person has paid tax under section 10(1) despite not being eligible, such person shall, in addition to any tax that may be payable by him under any other provisions of this Act, be liable to a penalty and the provisions of section 73 or section 74 shall apply for determination of tax and penalty. Important Clarification 1. Issue :- whether supply of food and beverages at cinema halls is taxable as restaurant service which attract GST at the rate of 5% or not. Clarification :- Provided in Circular No. 201/13/2023-GST Dated 01.08.02023 supply of food or beverages in a cinema hall is taxable as restaurant service as long as: a) the food or beverages are supplied by way of or as part of a service, and b) supplied independent of the cinema exhibition service. where the sale of cinema ticket and supply of food and beverages are clubbed together, and such bundled supply satisfies the test of composite supply, the entire supply will attract GST at the rate applicable to service of exhibition of cinema, the principal supply. Some Important Point 1. For aggregate Turnover Refer Chapter Concept of Aggregate Turnover in GST 2. Threshold of aggregate turnover to be Read With Notification Notification No. 14/2019 Central Tax
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