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Statutory Provisions- Effective from 1st February 2019 vide The Central Goods & Services Tax Amendment Act,2018
(1) Notwithstanding anything to the contrary contained in this Act but subject to the provisions of sub-sections (3) and (4) of section 9, an eligible registered person, whose aggregate turnover in the preceding financial year did not exceed fifty lakh rupees, may opt to pay, in lieu of tax payable under sub-section (1) of section 9, an amount calculated at such rate as may be prescribed, but not exceeding, –
(i) one per cent. of the turnover in State or turnover in Union territory in case of a manufacturer, (ii) 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 (iii) half per cent. of the turnover in State or turnover in Union territory in case of other suppliers,
subject to such conditions and restrictions as may be prescribed:
Provided that the Government may, by notification, increase the said limit of fifty lakh rupees to such higher amount, not exceeding one crore and fifty lakh rupees, as may be recommended by the Council
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 ten per cent. of turnover in a State or Union territory in the preceding financial year or five lakh rupees, whichever is higher.
“Explanation.– For the purposes of second proviso, the value of exempt supply of services provided by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount shall not be taken into account for determining the value of turnover in a State or Union territory
(2) The registered person shall be eligible to opt under sub-section (1), if: —
(a) save as provided in sub-section (1), he is not engaged in the supply of services;
(b) he is not engaged in making any supply of goods which are not leviable to tax under this Act;
(c) he is not engaged in making any inter-State outward supplies of goods;
(d) he is not engaged in making any supply of goods through an electronic commerce operator who is required to collect tax at source under section 52; and
(e) he is not a manufacturer of such goods as may be notified by the Government on the recommendations of the Council:
Provided that where more than one registered persons are having the same Permanent Account Number (issued under the Income-tax Act, 1961), the registered person shall not be eligible to opt for the scheme under sub-section (1) unless all such registered persons opt to pay tax under that sub-section.
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, not eligible to opt to pay tax under sub-section (1) and sub-section (2), whose aggregate turnover in the preceding financial year did not exceed fifty lakh rupees, may opt to pay, in lieu of the tax payable by him under sub-section (1) of section 9, an amount of tax calculated at such rate as may be prescribed, but not exceeding three per cent. of the turnover in State or turnover in Union territory, if he is not––
(a) engaged in making any supply of goods or services which are not leviable to tax under this Act;
(b) engaged in making any inter-State outward supplies of goods or services;
(c) engaged in making any supply of goods or services through an electronic commerce operator who is required to collect tax at source under section 52;
(d) a manufacturer of such goods or supplier of such services as may be notified by the Government on the recommendations of the Council; and (e) a casual taxable person or a non-resident taxable person:
Provided that where more than one registered person are having the same Permanent Account Number issued under the Income-tax Act, 1961, the registered person shall not be eligible to opt for the scheme under this sub-section unless all such registered persons opt to pay tax under this sub-section.”;
(3) The option availed of by a registered person under sub-section (1) shall lapse with effect from the day on which his aggregate turnover during a financial year exceeds the limit specified under sub-section (1).
(4) A taxable person to whom the provisions of sub-section (1) apply shall not collect any tax from the recipient on supplies made by him nor shall he be entitled to any credit of input tax.
(5) If the proper officer has reasons to believe that a taxable person has paid tax under sub-section (1) despite not being eligible, such person shall, in addition to any tax that may be payable by him under any other provisions of this Act, be liable to a penalty and the provisions of section 73 or section 74 shall, mutatis mutandis, apply for determination of tax and penalty.
[Explanation 1.––For the purposes of computing aggregate turnover of a person for determining his eligibility to pay tax under this section, the expression “aggregate turnover” shall include the value of supplies made by such person from the 1st day of April of a financial year up to the date when he becomes liable for registration under this Act, but shall not include the value of exempt supply of services provided by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount.
Explanation 2.––For the purposes of determining the tax payable by a person under this section, the expression “turnover in State or turnover in Union territory” shall not include the value of following supplies, namely:––
supplies from the first day of April of a financial year up to the date when such person becomes liable for registration under this Act; and
(ii) exempt supply of services provided by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount.’.]
Related Provisions of the Statute
Section or Rule
Description
Section 9
Levy and collection
Section 2(6)
Definition of Aggregate turnover
Section 2(102)
Definition of Services
Section 2(78)
Definition of Non-taxable supply
Section 2(112)
Meaning of Turnover in a State
Section 52
Collection of tax at source
Introduction
This Section provides for a registered person to opt for payment of taxes under a scheme of composition, the conditions attached thereto and the persons who are entitled, but not mandated, to make payment of tax under this Scheme. The conditions, restrictions, procedures and the documentation in respect of this scheme are contained in Chapter II of the Central Goods and Service Tax Rules, 2017 from Rule 3 to Rule 7 (Composition Rules).
Analysis
Tax payment under this scheme is an option available to the taxable person. This scheme would be available only to certain eligible persons.
(a) Payment of tax: The composition scheme offers to a registered person, the option to remit taxes on the turnover as against outward supply-wise payment of taxes. In other words, the registered person opting to pay tax under the composition scheme needs only to ascertain the aggregate value of outward taxable supplies, and compute the tax thereon at a fixed rate, regardless of the actual rate of tax applicable on the said outward supply. The rate of tax prescribed in this regard is as under:
i. In case of manufacturers: 1% (0.5% CGST+ 0.5% SGST) of the turnover in the State/UT (Note: The rate applicable has been reduced from 2% to 1% vide Notification No. 1/2018-Central Tax dated 23.01.2018 effective 01.01.2018);
ii. In case of food/restaurant services:5% (2.5% CGST+ 2.5% SGST) of the turnover in the State/UT(i.e., in case of composite supply of service specified in Entry 6(b) of Schedule II);
iii. In case of other suppliers: 1% (0.5% CGST+ 0.5% SGST) of the turnover of taxable supplies in the State/UT (such as like traders, agents for supply of goods, etc.)
(b) Eligibility to pay tax under composition scheme: The conditions for eligibility to opt for payment of tax under the composition scheme is as follows:
i. Registered persons having an ‘aggregate turnover’ as defined under Section 2(6) of the Act (i.e., aggregate of turnovers across all States under the same PAN, including exempt supplies, supplies specified under Schedule I, etc.) does not exceed the prescribed limit in the preceding financial year will be eligible to opt for payment of tax under the composition scheme. Please refer to the discussion on aggregate turnover as explained in the definitions Chapter for a better understanding of the expression. In this regard, the following may be noted:
The prescribed threshold limit is Rs. 1 crore (and Rs. 75 lacs in case of Special Category States being Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Himachal Pradesh); The prescribed threshold limit is Rs. 1.5 crores (including States of Jammu & Kashmir , Assam, Uttarakhand and Himachal Pradesh).
The aggregate turnover of the registered person should not exceed the said prescribed limit during the financial year in which the scheme has been availed;
The ‘aggregate turnover’ as computed for a composition taxpayer shall not include any interest income, which is earned by way of supply of services such as extending deposits, etc. where such interest or discount is exempted under the GST Law.
Frequently Asked Questions
Will a taxable person be eligible to opt for composition scheme only for one out of 3 branches, duly registered?
No. Composition scheme would become applicable for all the business verticals / registrations which are separately held by the person with same PAN.
Can composition scheme be availed if the taxable person has inter-State inward supplies?
Yes. Composition scheme is applicable subject to the condition that the taxable person does not engage in making inter-State outward supplies (subject to Notification No. 2/2019-Central Tax (Rate) dated 07th March, 2019), while there is no restriction on making any inter-State inward supplies.
Can the taxable person under composition scheme claim input tax credit?
No. Taxable person under composition scheme is not eligible to claim input tax credit.
Can the customer who buys from a taxable person who is under the composition scheme claim composition tax as input tax credit?
No. customer who buys goods from taxable person who is under composition scheme is not eligible for composition input tax credit.
Can composition tax be collected from customers?
No. The taxable person under composition scheme is restricted from collecting tax.
What is the threshold for opting to pay tax under the composition scheme?
The threshold for composition scheme is up to 1.50 crores of aggregate turnover in the preceding financial year.