The composition levy is an alternative method of levy of tax designed for small taxpayers whose turnover is up to Rs. 1.5 Crore (s. 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.
Rate of composition levy:
- Manufacturers, other than manufacturers of such goods as may be notified by the Government (Ice cream, Pan Masala, Tobbacco products etc.) : 1% ( .50% Central tax plus .50% State tax) of the turnover.
- Restaurant Services: 5% (2.5% Central tax plus 2.5% SGST) of the turnover.
- Traders or any other supplier eligible for composition levy: 1% ( 0.5% Central tax plus 0.5% State tax) of the turnover of taxable supplies.
- What is the eligibility category for opting for composition levy? Which are the Special Category States in which the turnover limit for Composition Levy for Central tax and State tax purpose shall be Rs. 75 lakhs?
Composition scheme is a scheme for payment of GST available to small taxpayers whose aggregate turnover in the preceding financial year did not cross Rs. 1.5 Crores. In the case of the following States, the limit of turnover is Rs. 75 lakhs:-
(i) Arunachal Pradesh, (ii) Manipur, (iii) Meghalaya, (iv) Mizoram, (v) Nagaland, (vi) Sikkim, (vii) Tripura, (viii) Uttarakhand.
Following persons are not allowed to opt for the composition scheme:
a) a casual taxable person or a non-resident taxable person;
b) Suppliers whose aggregate turnover in the preceding financial year crossed Rs. 1.5 Crore ;
c) Supplier who has purchased any goods or servcies from unregistered supplier unless he has paid GST on such goods or services on reverse charge basis;
d) Supplier of services, other than restaurant service;
e) Persons supplying goods which are not taxable under GST law;
f) Persons making any inter-State outward supplies of goods;
g) Suppliers making any supply of goods through an electronic commerce operator who is required to collect tax at source under section 52; and
h) a manufacturer of following goods:
Chapter 2105 00 00 : Ice cream and other edible ice, whether or not containing cocoa.
Chapter 2106 90 20 : Pan masala
Chapter 24 : Tobacco and manufactured tobacco substitutes
A person opting for composition levy will have to pay tax on quarterly basis before 18th of the month succeeding the quarter during which the supplies were made.(in Form CMP-08). The said persons shall furnish a return for every financial year or, as the case may be, part thereof in FORM GSTR-4 of the Central Goods and Services Tax Rules, 2017, on or before the 30th day of April following the end of such financial year.
A person availing composition scheme during a financial year crosses the turnover of Rs.1.5 Crores /75lakhs during the course of the year i.e. say he crosses the turnover of Rs.1.5 Crores/75lakhs in December? Will he be allowed to pay tax under composition scheme for the remainder of the year i.e. till 31st March?
The option to pay tax under composition scheme lapses from the day on which his aggregate turnover during the financial year exceeds the specified limit (Rs. 1.5 Crores/ Rs. 75 lakhs). He is required to file an intimation for withdrawal from the scheme in FORM GST CMP-04 within seven days from the day on which the threshold limit has been crossed. However, such person shall be allowed to avail the input tax credit in respect of the stock of inputs and inputs contained in semi-finished or finished goods held in stock by him and on capital goods held by him on the date of withdrawal and furnish a statement within 30 days of withdrawal containing the details of such stock held in FORM GST ITC-01 on the common portal.
Aggregate turnover be computed for the purpose of composition:
Aggregate turnover will be computed on the basis of turnover on an all India basis and will include value of all taxable supplies, exempt supplies and exports made by all persons with same PAN, but would exclude inward supplies under reverse charge as well as central, State/Union Territory and Integrated taxes and cess.
As per Removal of Difficulty order Order-01/2017-Central Tax dated 13.10.2017, in computing his aggregate turnover in order to determine his eligibility for composition scheme, value of supply of any exempt services including services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount, shall not be taken into account.