Composition levy GST ( Composition Scheme GST )

Only taxable persons whose ‘aggregate turnover’ does not exceed Rs. 50 lacs in a financial year will be eligible to opt for payment of tax under the composition scheme.As per Section 16, Goods and/or services on which composition tax has been paid under Section 8 is not eligible for input tax credit.

1. Composition Levy In GST CA Amit Bhutada ALL ABOUT COMPOSITION LEVY A N Bhutada & CO. Chartered Accountant 19 September 2016

2. Under GST for t ax payer, a scheme called Composition Scheme is offered to taxpayer, by which the taxpayers are given the option to pay an amount calculated on some parameter in lieu of tax calculated based on complex calculations expected by that law. In the proposed GST law also the composition schemes will be offered to certain set of taxpayers. The same is contained in Section 8 of Model GST law . The taxable persons having Aggregate annual turnover of Rs. 50 lakhs are proposed to be made eligible for Composition levy. Composition Levy Under GST ALL ABOUT COMPOSITION LEVY Page No.1 A N Bhutada & CO. Chartered Accountant

3. COMPOSITIONS Levy UNDER GST Index Definition Of Composition Levy Eligibility For Composition Levy Process To Opt Composition Levy Input Tax Credit Under Composition Levy Returns Under Composition Levy Cancellation Of Permission To Opt Composition Levy ALL ABOUT COMPOSITION LEVY 1 Page No.2 A N Bhutada & CO. Chartered Accountant

4. Notwithstanding anything to the contrary contained in the Act but subject to sub section(3 ) of section 7, on the recommendation of the Council, the proper officer of the Central or a State government may, subject to such conditions and restrictions as may be prescribed, permit a registered taxable person, whose aggregate turnover in a financial year does not exceed fifty lakh of rupees, to pay, in lieu of the tax payable by him, an amount calculated at such rate as may be prescribed, but not less than one percent of the turnover during the year. Provided that no such permission shall be granted to a taxable person who effects any inter-State supplies of goods and / or services. Provided further that no such permission shall be granted to a taxable person unless all the registered taxable persons, having the same PAN as held by the said taxable person , also opt to pay tax under the provisions of this sub-section . Composition Levy (Sec-8 ) Thresholds limit of aggregate Turnover Rs.50 Lakhs. Scheme to be opted for all Units under same PAN Tax would be paid not less than 1% Tax would not be charged and collected from Customer Not entitled to take input tax credit. SECTION 8 DEFINATION OF COMPOSITION LEVY ALL ABOUT COMPOSITION LEVY 1 1 Page No.3 A N Bhutada & CO. Chartered Accountant

5. EXAMPLE OF COMPOSITION LEVY 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. Mr. X Mr. Y ( Sells goods to Mr.Z) Mr. Z Customer Tax would be paid not less than 1% Tax would not be charged and collected from Customer Mr. Y shall not be entitled to claim any input tax credit. SELLER Mr. X Sells Material to Mr. Y by applying taxes Paid Tax on such Material purchased by Mr. Y from Mr. X of say Rs. 100,000/- and sell final product at 200,000/- ( under Composition Levy ) S.No Particulars Amount 1 GST Payable at 1% * 200,000/- 2000/- 2 Less : Already Paid 3 GST to be Paid 2000/- ALL ABOUT COMPOSITION LEVY Page No.4 A N Bhutada & CO. Chartered Accountant

6. ELIGIBILITY FOR COMPOSITION LEVY 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 - ( Taxes + Value of inward supplies + Value of supplies taxable under reverse charge ) Sec 2(104) Aggregate turnover does not include value of supplies taxable under Reverse Charge Mechanism. Applicable to goods as well as services. CONDITIONS FOR OPTING COMPOSITION LEVY 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. ALL ABOUT COMPOSITION LEVY 2 Page No.5 A N Bhutada & CO. Chartered Accountant

7. CONDITIONS FOR OPTING COMPOSITION LEVY 3. Applicable to all the transaction under same PAN: ( ONE PAN BASED ) 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. Mr. X has businesses namely: Sale of Cloths (goods) Sale of electrical appliances (goods) Giving services ( service) So in this case, Whether Mr. X has to opt composition scheme for all the business including services. 4. Not eligible to input tax credit: To pay tax under composition scheme, the assessee cannot utilize the input tax credit. ALL ABOUT COMPOSITION LEVY 5. Additional conditions: There may be other conditions or restrictions which may be prescribed under the Rules. Fulfilling those conditions, if any, would also be necessary to opt for payment of taxes under the Composition Scheme. Page No.6 One PAN Based

8. PROCESS TO OPT COMPOSITION LEVY Assessee has to opt the composition scheme from the 1 ST day of Financial year i.e. from 1 st 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 31 st 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 31 st 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. ALL ABOUT COMPOSITION LEVY 3 Page No.8 A N Bhutada & CO. Chartered Accountant

9. INPUT TAX CREDIT UNDER COMPOSITION LEVY Switches 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. 2. Switches 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. ALL ABOUT COMPOSITION LEVY 4 Page No.8 A N Bhutada & CO. Chartered Accountant

10. 5 RETURNS UNDER COMPOSITION LEVY A registered taxable person paying tax under the provisions of section 8 of this Act shall furnish a return for each quarter or part thereof, electronically , in such form and in such manner as may be prescribed, within eighteen days after the end of such quarter . GSTR-4 has been prescribed by the government under draft business processes an return to be filed by an compounding dealer. Compounding dealer shall furnish the first return for the period starting from the date on which he becomes a registered taxable person till the end of the quarter in which the registration has been granted. ALL ABOUT COMPOSITION LEVY Page No.9 A N Bhutada & CO. Chartered Accountant

11. 6 CANCELLATION OF PERMISSION TO OPT COMPOSITION LEVY 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. ALL ABOUT COMPOSITION LEVY Sections 66, 67 and 68 Page No.10 6 A N Bhutada & CO. Chartered Accountant

12. Contact Details CA Amit Bhutada Cell 80555 66789 Email : [email protected] Website : www.anbca.com ALL ABOUT COMPOSITION LEVY THANK YOU A N Bhutada & CO. Chartered Accountant