Composition Scheme Under GST
- 1. COMPOSITION SCHEME UNDER GST
- 2. MEANING OF COMPOSITION SCHEME Composition scheme is an scheme where supplier has option to pay in lieu of the tax payable by him , an amount calculated at such rate as may be prescribed not less than 1% of turnover during the year. In this presentation we will learn: Eligibility of composition scheme. Condition for claiming composition scheme. Process to opt composition scheme ITC under composition scheme Cancellation of permission to opt composition scheme. R/m-------FP Sales the Dutiable FP FACTORY MR. Y SELLER Paid Tax on such R/M purchased by Mr. Y from Mr. X of say Rs. 10,000 Mr. X Removal of FP @ Rs.100000 Mr. Z Provides Raw Material/ Capital Goods/ Input Services GST 100000*1% ( @composition scheme = 1000 Less: Tax allready paid on R/M =NIL GST to be Paid =1000
- 3. ELIGIBILITY FOR COMPOSITION SCHEME Following persons are eligible to opt composition scheme under GST: Taxable person whose “aggregate turnover” does not exceed Rs. 50 Lakhs in financial year. “Aggregate Turnover” = Value of all taxable + non-taxable + exempt supplies + exports. Aggregate turnover does not include value of supplies taxable under Reverse Charge Mechanism. Applicable to goods as well as services. CONDITIONS FOR OPTING COMPOSITION SCHEME (1/2) 1. Restriction from effecting inter-state supplies: Composition scheme is not applicable to person who undertake inter-state supplies i.e. export goods to other state and/or imports from other states 2. Collection of taxes: Person opting for composition scheme cannot collect taxes from recipient of service or goods.
- 4. CONDITIONS FOR OPTING COMPOSITION SCHEME (2/2) 3. Applicable to all the transaction under same PAN: If taxable person has multiple business and has opted for different registration for each business, composition scheme would be applicable to all business, it can’t be applied for selected businesses only. 4. Not eligible to input tax credit: To pay tax under composition scheme, the assessee cannot utilize the input tax credit. e.g. Mr. X has businesses namely: i. Sale of footwear (goods) ii. Sale of mobiles (goods) iii. Giving tuition classes (service) So in this case, Whether Mr. X has to opt composition scheme for all the business including services. Ans: YES. Aggregate turnover of 50 lakhs would be aggregate of footwear, mobile & tuition classes.
- 5. PROCESS TO OPT COMPOSITION SCHEME Assessee has to opt the composition scheme from the 1ST day of Financial year i.e. from 1st April onwards. Application for opting such composition scheme have to given to the Department by the assessee. Such application must be filled with the Department on or before 31st March of Previous year. The law allows the assessee to shift from the composition scheme to normal scheme voluntarily even during the year. If the turnover of assessee opting composition scheme exceeds Rs.50 Lakhs during the year, he will be shifted to normal Scheme automatically. E.g.: If Mr. X has to opt for composition scheme from 1st April, 2018, he has to fill the application on or before 31st March, 2018. If during the year, Mr. X’s turnover exceeds 50 lakhs at any point of time, his opted composition scheme will lapse and he will be shifted to the Normal scheme automatically.
- 6. INPUT TAX CREDIT UNDER COMPOSITION SCHEME When taxable person switches over from normal scheme to composition scheme, he would have to pay an amount equivalent to input tax credit utilize Out of input tax credit of stock or semi-finished goods/finished products held in stock On the day immediately preceding date of switch over from normal scheme to composition scheme. The balance Input-tax credit of goods lying in stock will lapse. On switchover from composition scheme to normal scheme or when he become ineligible to opt composition scheme, Person will be eligible to book credit of input lying in stock & semi-finished/finished goods held in stock, on the day immediately preceding the date from which he become liable to pay tax under regular scheme.
- 7. CANCELLATION OF PERMISSION TO OPT COMPOSITION SCHEME If proper officer believes that person opting composition scheme is not eligible for the same OR permission granted to opt composition scheme was granted incorrectly, he may cancel the permission to opt composition scheme and demand the following amount: Differential tax i.e. tax payable under normal scheme if the person would not opt the composition scheme. Penalty equivalent to the tax or any higher amount as may be prescribed by the Govt from time to time.