GST Composition scheme : Amended Provisions


GST Composition scheme : Amended Provisions

The provisions of composition scheme has been amended for the benefit of the tax payers. There has been certain major changes in the eligibility criteria as well as the condition specified for the availment of composition scheme, which has been discussed below.

The revised section 10(1), states that ?Notwithstanding anything to the contrary contained in this Act, but subject to the provisions of sub-sections (3) and (4) of section 9, a registered person, whose aggregate turnover in the preceding financial year did not exceed ? 1.5Cr. (75 lacs for Special category State except state of Assam, Himachal Pradesh and Jammu & Kashmir) may opt to pay, in lieu of the tax payable by him under section 9(1), an amount calculated at such rate as may be prescribed, but not exceeding,?

(a) Half Per cent of the turnover in State or turnover in Union territory in case of a manufacturer,

(b) two and a half per cent of the turnover in State or turnover in Union territory in case of persons engaged in making supplies referred to in clause (b) of paragraph 6 of Schedule II, and

(c) half per cent of the turnover of taxable supply of goods and services as per rule 7 below) in State or turnover in Union territory in case of other suppliers.

Provided further that a person who opts to pay tax under clause (a) or clause (b) or clause (c) may supply services (other than those referred to in clause (b) of paragraph 6 of Schedule II), of value not exceeding 10% of turnover in a State or Union territory in the preceding financial year or 5 lakh rupees, whichever is higher.?

Let us understand each and every amendment in detail :-

1 . The government has the power to increase the turnover limit for determining the eligibility for composition scheme (earlier ?1 crore). The said provision has been amended thereby empowering the Government to enhance the eligibility turnover limit for composition scheme upto ? 1.5 crore. Now a registered person, whose aggregate turnover in the preceding financial year did not exceed upto ? 1.5 crore is eligible to opt for composition scheme.

2 . Turnover limit for determining the eligibility for composition scheme in case of Special Category States has also been amended. Below are the turnover limit applicable in case of special category states:

(i) Turnover upto ?75 lakhs:-

  • Arunachal Pradesh
  • Uttarakhand
  • Manipur
  • Meghalaya
  • Mizoram
  • Nagaland
  • Sikkim
  • Tripura

(ii) Turnover upto ?1.5 crores:-

  • Assam
  • Himachal Pradesh
  • Jammu &Kashmir

3 . Section 10(1) has been amended with a view to remove any interpretational ambiguity and stipulates that the composition tax payers shall pay tax as a percentage of their turnover instead of the tax payable on the invoice value of the transactions under section 9(1) [applicable to regular taxpayers].

4 . Composition scheme taxpayers permitted to render services other than restaurant services upto a specified limit [Second proviso to section 10 of the CGST Act]

Before amendment – Under the old provisions, only a supplier of restaurant service was eligible for composition scheme.

However, there are cases where a manufacturer/ trader is also engaged in supply of services other than restaurant service though the percentage of such supply of services is very small as compared to the supplies of goods. There may also be cases where a restaurant service provider is also engaged in supplying a small percentage of other services.

Amendment – With a view to enable such taxpayers to avail of the benefit of composition scheme, second proviso has been added to section 10(1) which permits a registered person opting for composition scheme to supply services [other than restaurant services] of specified value. This specified value is value not exceeding:-

(a) 10% of the turnover in a State/Union territory in the preceding financial year

 or

(b) ?5 lakh, whichever is higher.

Impact – Thus, a registered person opting for composition scheme whose turnover is more than ?50 lakh and upto?1.5 crore in the preceding financial year can supply services [other than restaurant services] in the current financial year upto a maximum value of 10% of the turnover in a State/Union territory in the preceding financial year or ?5 lakh, whichever is higher.

5 . In calculating the amount of CGST/SGST/UTGST/IGST, in case of traders, under the composition scheme, the basis of calculation will be taken as turnover of taxable supplies of goods as well as services in a state, instead of goods only, as was applicable earlier. This means tax will be calculated @ 0.5% of turnover of taxable supplies of goods as well as services in a state/union territory.

Let us understand the whole concept through an example :-

Mr. X is a trader eligible for composition scheme in financial year 18-19 as his turnover in preceding financial year is ?68 lakhs. In the current year Mr. X made the following supplies:-

  • 1st April 2018 supply the goods to Mr. Raj worth ?2,50,000
  • 10th April 2018 supply the goods to Mr. Veer worth ?7,50,000
  • 20th May 2018 supply the goods to Mr. Sameer worth ?22,00,000
  • 22nd May 2018 supply the service to Mr. Tushar worth ?2,20,000

Now, Section 10(1) of CGST Act, 2017 inter alia provides that the benefit of composition levy can be availed by a registered person if the aggregate turnover in the preceding financial year does not exceed ? 1.5 crore. However, the said threshold is reduced to ?75 lakh in case of special category states other than Assam, Himachal Pradesh and Jammu & Kashmir. Also, section 10(1) permits a registered person opting for composition scheme to supply services [other than restaurant services] of specified value. This specified value is value not exceeding :-

(a) 10% of the turnover in a State/Union territory in the preceding financial year,  or

(b) ?5 lakh, whichever is higher.

Hence, total GST payable will be ?17,100 for CGST and SGST each i.e. ?34,20,000?0.5%.

Mr. X can supply the services upto ?6,80,000 (i.e. 10% of 68 lakh or 5 lakh, whichever is higher).In the given case, Mr. X supplied the service only for ? 2,20,000 which is within the limit. Therefore, in this situation, Mr. X is eligible for composition scheme even after 22 May 2018.

You May Also Refer : GST: Composition Scheme under section 10 of CGST Act, 2017

Advantages and Disadvantages of GST Composition Scheme

Applying for Composition Scheme for Service Providers [CBIC Circular]

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