Composition Levy

Source https://cbic-gst.gov.in/pdf/faq-manual/faq-composition-levy-revised.pdf

Composition levy is an alternative method of levy of tax designed for small taxpayers whose turnover is up to Rs. 75 lakhs (Rs. 50 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.

Manufacturers, other than manufacturers of such goods as may be notified by the Government (Ice cream, Pan Masala, Tobbacco products etc.) – Applicable Tax Rate of 2% (1% Central tax plus 1% State tax) of the turnover.

Restaurant Services – Applicable Tax Rate 5% (2.5% Central tax plus 2.5% SGST) of the turnover.

Traders or any other supplier eligible for composition levy – Applicable Tax Rate 1% (0.5% Central tax plus 0.5% State tax) of the turnover.

In the case of the following States, the limit of turnover is Rs. 50 lakhs:-

a) Arunachal Pradesh

b) Assam

c) Manipur

d) Meghalaya

e) Mizoram

f) Nagaland

g) Sikkim

h) Tripura

i) Himachal Pradesh

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. 75 lakhs;

c)     supplier who has purchased any goods or services 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 Ice cream and other edible ice, whether or not containing cocoa, Pan masala, Tobacco and manufactured tobacco substitutes.

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.

A taxable person opting to pay tax under the composition scheme is out of the credit chain. He cannot take credit on his input supplies. When he switch over from composition scheme to normal scheme, eligible credit on the date of transition would be allowed.

Composition dealer cannot collect tax paid by him on outward supplies from his customers, the registered person making purchases from a taxable person paying tax under the composition scheme cannot avail credit.

The option is required to be given electronically in FORM GST CMP-02, prior to the commencement of the relevant financial year. The option to pay tax under composition scheme will have to be exercised for all States.

The person exercising the option to pay tax under section 10 shall comply with the following other conditions, namely: -

a) 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

b) 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.

A person paying tax under composition scheme cannot make inter-State outward supply of goods. Thus, for making supplies to an SEZ unit, a person needs to take registration as a regular taxpayer. The supplies to SEZ will be zero rated and the supplier will be entitled to make supplies without payment of tax or if he pays tax, he will be entitled to refund of tax so paid.