The composition levy is an alternative way of levy of tax for small taxpayers who have turnover up to prescribed limit. The purpose of Composition scheme is to reduce compliance cost and bring simplicity and easiness for small taxpayers. The composition scheme is voluntary and optional scheme for taxpayer. There are various slabs of rates in GST like 3%, 5%, 12%, 18%, 28% etc. But A taxpayer registered under composition levy scheme has to pay an amount equal to certain fixed percentage of his annual turnover as tax to the government. This tax has to be paid on quarterly basis. Such taxpayer does not have to maintain elaborate accounts.
Earlier, the composition scheme was available to only traders and manufacturer. However subsequently service providers were also included in this scheme.
Only Traders or Manufacturer - Taxpayer having aggregate annual turnover up to Rs 1.5 crores (75 Lakhs for Arunachal Pradesh, Uttarakhand, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim Tripura) can opt for Composition Scheme. As per the CGST (Amendment) Act, 2018, a composition dealer can also supply services to an extent of ten percent of turnover, or Rs.5 lakhs, whichever is higher. The rate of tax for this category of taxpayers is 1% of turnover.
Service Provider: Taxpayer having aggregate annual turnover up to Rs 50 Lakhs can opt for composition scheme. The rate of tax for this category of taxpayer is 6% of turnover. But for restaurants, this turnover limit is Rs 1.5 crores and rate of tax is 5% of turnover.
Generally, composition scheme is beneficial for those who are dealing with B2C customers since B2C customers do not avail Input Tax Credit on their purchases. But those who are dealing with B2B should not opt for composition dealer since their customer will not be able to claim ITC on purchases and it will be costlier for them to purchase from Composition dealer.
New registration: Person who are applying for new registration may opt for composition in form REG-01 while applying for registration.
Already registered taxpayer: Taxpayer who is already registered as normal taxpayer may switch to composition scheme by submitting form CMP-02. This option can be exercised only at the beginning of new financial year. Once opted, the option need not be renewed every year.
A person opting for the composition levy scheme can continue to pay tax under the said scheme as long as he satisfies the eligibility criteria and conditions related to the scheme and do not require to file a fresh application every year. But such a person shall be liable to pay tax as normal taxpayer from the day he ceases to satisfy any of the conditions and shall issue tax invoice for every taxable supply made thereafter and he shall also file an intimation for withdrawal from the scheme.
Voluntary Withdrawal: A registered person may withdraw composition voluntarily by filing form CMP-04.
Turnover exceeds prescribed limit: A composition scheme shall be withdrawn once the turnover of person exceeds the maximum limit prescribed i.e., Rs 1.5 Crores (75 Lakhs for Arunachal Pradesh, Uttarakhand, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim Tripura) for Traders and manufacturer and Rs 50 Lakhs for Service Provider.
Composition person ceases to satisfy conditions: The composition scheme remains valid so long registered person satisfy all conditions. If he ceases to satisfy any condition, his option for composition shall be withdrawn. For example, a person makes an inter-state supply of goods from West Bengal to Maharashtra.
Denial by tax authorities: Proper officer may deny the option to pay tax under composition scheme if he finds that taxable person is not eligible for the composition scheme.
Composition dealer has to make payment every quarter. The due date of payment is 18th of the next month for the quarter. For example, the due date of payment for April-June quarter is 18th July.
Further, composition dealer has to file annual return in a year after end of financial year.
A composition dealer is not eligible to avail any Input tax credit. He has to discharge all his liabilities through cash ledger only.
When you opt out of composition scheme, you can avail Input tax credit of Stock in hand and capital goods remaining with you subject to some restriction.
A person registered as composition dealer of goods may supply services up to 10% of turnover of goods or 5 Lakhs whichever is higher. In such a case, rate shall be 1% only.
Answer is No, if you are already registered as normal taxpayer under GST then you can opt for composition scheme only at the beginning of new financial year.
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