Compulsory Withdrawal from GST Composition Levy: FAQs

Narendra Kumar

22 Mar, 2021

The GST or Goods and Service Tax is a brilliant game changer; why, because of its implementation there has been a tremendous outflow of benefits. Since it’s launch i.e. from July 1, 2017, GST has been subjective to several debates and controversies, where many have been applauding the implementation and several opposing the immediate deadline. But all in all, GST has boosted revenue for the Government and for a strong majority of the businesses. This article describes Compulsory Withdrawal from GST Composition Levy.

To know more about GST and it’s compulsory withdrawal from GST composition levy, below mentioned are common FAQs addressed.  

What is GST Composition Scheme?

The Composition Scheme is a simple and hassle-free compliance scheme, for every small taxpayer. However, it should be noted that the GST Composition Scheme is an optional and voluntary scheme.

Why Small Businesses should go for GST Composition Scheme?

1. The composition scheme allows for easy compliance as there is no need to maintain any records or complicated accounts.
2. Quarterly payment of tax.
3. Simple quarterly return.

What are the methods to calculate Aggregate Turnover?

For any individual who is having a PAN or Permanent Account Number can calculate aggregate turnover. To help in the calculation, aggregate turnover is the sum of the value of all outward supplies that fall in the following category:

1. Exempt supplies
2. Taxable supplies
3. Interstate supplies
4. Exports of services and goods or at times both
5. Taxes that includes cess paid under the law of GST
6. Value of inward supplies on which the tax is paid by the individual on reverse charge basis.

How to know who is Eligible for the Composition Levy Scheme?

All registered taxable individuals whose average turnover is not more than One Crore or 75 Lakhs (in case of J&K residents) in every financial year are not liable to apply for GST Composition Levy. For more clarity, the list of taxable individuals who are not eligible for the scheme are:

1. A casual taxpayer i.e. an individual who undertakes supplies that are under Union or State territory (with no fixed place of business)
2. Non-resident taxable individual (occasional taxpaying with no fixed place of business)
3. Services supplier expect for an individual who is engaged in restaurant service supply.
4. Individual involved in arranging inter-state supply of goods.
5. Individuals involved in supplying of non-taxable goods (goods that are does not come under GST taxable bracket)
6. Individual involved in goods supply through Electronic Commerce Operator. Please note that these individuals are required to collect tax source through 52 of the CGST Act^[1].
7. Individual involved in the manufacturing of goods that are notified under sec 10 (2) (e) of the CGST Act.

What are the Restrictions and Conditions to be followed under the Scheme?

Any individual who is opting for the GST Composition levy scheme, has to adhere to the following mentioned conditions and restrictions:

1. The Issued bill of supply has to be done in the prescribed manner.
2. All taxes on the purchased items has to be paid timely on the reverse charge basis.
3. Input tax credit on the purchases cannot be claimed by the individual.
4. Individuals are required to mention “Composition Taxable Person” on nearly every signboard or noticeboard, displayed at every prominent place in the place of business.

What is the Validity of the Composition Levy Scheme?

Any individual who is planning to choose the composition levy scheme can easily continue to pay under the mentioned scheme as long as he/she qualifies the conditions and the eligibility criteria that are in relation to the scheme. Please note that in reference to the conditions, every individual is required to file a fresh application every year.

Are there any limitations of filing GST Composition scheme?

All, is never good, when it comes to taxation regulations and policies in India. Below mentioned are few limitations listed under GST composition scheme:

• No Credit of Input Tax

Any individual or dealer will not be eligible for taking credit of Input Tax Credit on all the purchases. Similarly, the buyers of all these registererd goods will not be able to get the credit of paid taxes.

• Taxes are paid from own savings

Under the composition scheme regulations, the individual/dealer is not allowed to charge any tax from the buyer, in spite of having a low rate, which means he/she has to pay the tax from his/her own pocket. Following to this regulation, the individual/dealer is not allowed to issue any tax invoice which ultimately leads to a burden on the assessee.

• Strict Penal Provisions

The penal provisions under the composition levy scheme are quite severe which means that any individual who is planning to file under the said scheme has to be extremely careful.

What is the deadline to file for GST Composition Levy Scheme?

The deadline to file for GST composition levy scheme is 31st March of every year. For example, the last date of filing GST composition scheme of FY 2019-2020 was 31st March 2019.