What is Composition Scheme Rule Under GST?

Ashish M. Shaji

17 Mar, 2023

Composition scheme is an alternative method to tax small taxpayers. It simplifies compliances and reduces compliance costs. The objective behind introduction of this scheme is to ensure proper tax collection by the government without troubling small taxpayers.

Intimation for Composition Levy

• Any person who has migrated to GST through Provisional ID under clause (b) of sub-rule (1) of Rule 24 and who wants to opt to pay tax under section 10 of GST Act^[1], shall file an intimation in E-FORM GST CMP-01, on the common portal, either directly or through a Facilitation Centre notified by the Commissioner, before the appointed date, but not later than 30 days after the said appointed date, or such further period as may be extended by the Commissioner of GST.
• After availing the composition scheme and intimation in FORM CMP-01 to a Common portal are filed after the appointed day, the registered taxable person shall not collect any GST but shall issue a bill of supply made after the said day.
• Anyone who applies for GST registration under composition scheme under sub-rule (1) of Rule 8 may give an option to pay tax under section 10 in Part B of FORM GST REG-01
• Any person registered under composition scheme has to files an intimation under sub-rule (1) to pay tax under section 10 shall furnish the details of opening and closing stock, including the inward supply of goods received from unregistered dealer, held by him on the day prior to the date from which he opts to pay tax under the said section, electronically, in FORM GST CMP-03, on the GST common portal or any other filing channel as notified by the Commissioner, within a period of sixty days from the date on which the option for composition scheme is exercised or within such further period as may be extended by the Commissioner of GST.

What is Effective Date for Composition Levy?

The option of paying tax under this scheme shall be effective for persons that are already registered under GST from the appointed day and for persons registered under GST and switches to composition scheme from filing of intimation.

For those who have applied for fresh GST registration to opt scheme, the option to pay tax under composition scheme will be effective from where the application has been submitted within 30 days from the day the person becomes liable for registration, such date.

In the above mentioned case, the effective date of registration will be the date of grant of registration.

Conditions and Restrictions for Composition Levy

• The person opting for composition scheme and tax paid under section 10 shall comply with the following conditions, namely:

• The person opting for the scheme shall neither be a casual taxable person nor a Non- resident taxable person.
• The goods held as stock in trade by him on the appointed date are not purchased through interstate trade or e-commerce or through imported or export outside India or through his agent or through principal outside the State, where the option is exercised under sub-rule (1) of rule 3.
• The goods held as stock in trade by him have not been purchased from an unregistered dealer.
• The registered taxable person is not engaged in the manufacture of goods as notified under section 10(2)(e) during the preceding financial year.
• He shall use the words composition taxable person” at the top of the bill of supply issued by him as he is not liable to collect the tax.

The registered person under Composition scheme paying tax under section 10 is not required to file a new intimation yearly, and there will be one-time suggestion to GST Department and the Registration under composition scheme is subject to compliance with the relevant GST Laws.

The Validity of the Composition Scheme

• The option exercised by a registered taxable person under GST to pay tax under section 10 shall remain valid so until he satisfies all the conditions mentioned in the said section and under the rules
• The person referred to in sub-rule (1) shall be liable to pay tax under sub-section (1) of section 9 until the day he ceases to satisfy any of the conditions specified under section 10 or the provisions of this Chapter and will also be required to issue tax invoice for every taxable supply made thereafter and he shall also file an intimation for withdrawal from the scheme in FORM CMP-04 within seven days of the occurrence of such event.
• The registered person who intends to withdraw from the composition scheme shall file an application in FORM CMP-04, duly signed or verified through electronic verification code, electronically on the common portal. (www.gst.gov.in)
• Where the proper officer has reasons to believe that the registered person is not eligible to pay tax under section 10 or has contravened the provisions of the Act or provisions of this Chapter, he may issue a show cause notice to such person in FORM CMP-05 to show cause within fifteen days of the receipt of such notice as to why the option to pay tax under section 10 shall not be denied.
• Upon receipt of the reply to the show because notice issued under sub-rule (4) from the registered person in FORM CMP-06, the GST officer shall pass an order within 30 days. He may accept the reply of the registered taxable person or may reject the response.
• Every taxable person registered under GST composition scheme, who has furnished an intimation under sub-rule(2)for withdrawal of composition scheme registration or a person in respect of whom an order of withdrawal of option has been passed in FORM CMP-07 under sub-rule (5), may electronically furnish at the common portal, either directly or through a Facilitation Centre notified by the Commissioner, a statement in FORM GST ITC-01 containing details of the stock in trade and stock in form of inputs contained in semi-finished or finished goods held in stock by him on the date on which the option is withdrawn or denied, within a period of thirty days from the date from which the option is withdrawn or from the date of the order passed in FORM CMP-07, as the case may be.

The Rate of Tax under the Composition Scheme of GST

• The categories of taxable persons registered under composition levy under section 10 and the provisions of this Chapter, specified in column (2) of the Table below shall pay tax under section 10 at the rate specified in column (3) and column (4) of the said Table:

Conclusion

The composition scheme rules have been targeted to be strict for the persons availing of this scheme. The Composition scheme rules provides for all procedural compliance which includes intimation, date of levy, conditions and restrictions on the levy etc.  

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