Initially, under GST laws, composition scheme was restricted only for traders, manufacturers and restaurant service providers. With the implementation of CGST Amendment Act, 2017 as applicable w.e.f. 01.02.2019, a relatively small portion of services is allowed to be supplied under such Composition Scheme.
With the increase in demand for such a scheme for suppliers exclusively supplying “services” or “majorly services” with relatively small portion of goods, government has brought a new scheme to levy a comparatively lower tax rates along with lowering the burden of compliances.
This scheme is however not called ‘Composition Scheme’ by the law, but for the sake of simplicity of understanding the provisions, terms & conditions of such scheme, we will refer this as ‘Composition Scheme’ because most of the conditions under new scheme are similar to that of so-called ‘Composition Scheme’.
On 7th March 2019, CBIC has issued a notification CGST-R-2/2019 which is applicable w.e.f. 1st April 2019 which encapsulates the provisions of new scheme.
In this scheme, an eligible supplier shall pay tax at the rate of 6% (i.e. 3% CGST + 3% SGST/UTGST) on all goods or services or both supplied by him during the financial year. However, such rate shall be applicable for “First supplies of goods or services or both” upto an aggregate turnover of Rs 50 Lakh. In case, his turnover exceeds the limit during the year, such supplier shall pay tax as regular dealer at normal rate of tax on next supplies beyond Rs 50 Lakh.
For the application of this scheme, The Central Goods and Services Tax Rules, 2017, as applicable to a person paying tax under section 10 of the said Act shall, mutatis mutandis, apply to a person paying tax under this notification. Thus, the provisions contained in Chapter II of the said Rules shall apply to persons paying tax by availing the benefit of the said notification, except to the extent specified in below referred paras.
Terms and Conditions to avail the scheme :-
This scheme is available only for those registered persons complying all of following conditions :-
- Aggregate turnover during the immediate preceding financial year was upto Rs 50 Lakh;
- He should not be eligible to pay tax under Section 10(1) of CGST Act 2017 (i.e. under Composition Levy provisions);
- He is not making any supply which is not leviable under GST laws;
- He should not supply goods or services or both in the inter-state trade;
- He is neither a Casual Taxable Person nor a non-resident taxable person;
- He is not engaged in making any supply through an electronic commerce operator who is required to collect tax at source under section 52.
- He is not supplying any goods mentioned below:-
- Ice cream and other edible ice, whether or not containing cocoa (HSN Code : 2105 00 00)
- Pan Masala (HSN Code : 2106 90 20)
- All goods, i.e. Tobacco and manufactured tobacco substitutes (HSN Code : Chapter 24 )
Other Terms :-
- Where more than one registered persons are having the same Permanent Account Number (PAN), GST on supplies by all such registered persons should pay tax at the rate specified in this scheme (i.e. 6%).
- The registered person shall not collect any tax from the recipient on supplies made by him.
- The registered person shall not be entitled to any credit of input tax.
- The registered person shall issue a bill of supply (instead of tax invoice) with particulars as prescribed in rule 49 of CGST Rules 2017.
- The registered person shall mention the words at the top of the bill of supply, namely: – ‘taxable person paying tax in terms of notification No. 2/2019-Central Tax (Rate) dated 07.03.2019, not eligible to collect tax on supplies’.
- The registered person opting to pay GST at the rate of 6% under this scheme shall be liable to pay GST at such rate on all outward supplies notwithstanding the fact that such supply is exempt or nil rated under GST.
- Where such registered person is liable to pay GST under Reverse Charge Provisions as prescribed under Section 9(3) and/or Section 9(4) of CGST Act 2017, then he shall pay such tax at normal rates as applied on such inward supplies.
- Where any registered person who has availed of input tax credit opts to pay tax under this notification, he shall pay an amount, by way of debit in the electronic credit ledger or electronic cash ledger, equivalent to the credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock and on capital goods as if the supply made under this notification attracts the provisions of section 18(4) of the said Act and the rules made there-under and after payment of such amount, the balance of input tax credit, if any, lying in his electronic credit ledger shall lapse.
Manner for applicability of this scheme for newly registered persons during the year:
The expression “first supplies of goods or services or both” shall, for the purposes of determining eligibility of a person to pay tax under this notification, include the supplies from the first day of April of a financial year to the date from which he becomes liable for registration under the said Act.
However, supplies from the first day of April of a financial year to the date from which he becomes liable for registration under the Act shall not be included for the purpose of determination of tax payable under this scheme.
For Example, Mr. A is not a registered person during Financial Year 2018-19. From 1st April 2019, new financial year commences. Upto September 2019, he achieves the aggregate turnover of Rs 20 Lakh and is liable for registration under GST Laws w.e.f. 01 October 2019. From October 2019 to December 2019, he made outward supply of Rs 30 Lakh. And, from Jan 2020 to March 2020, he made outward supply of Rs 15 lakh.
His turnover of Rs 50 Lakh for recognising his benefit under this scheme will be counted from 1st April 2019. However, tax under this scheme shall be payable only for the supplies made during October 2019 to December 2019 (i.e. on Rs 30 lakh).
As the limit of Rs 50 Lakh under this scheme exhausted till 31st December 2019 (i.e. 20 Lakh before registration and 30 Lakh after registration), hence, from 1st January 2019 onwards, tax shall be payable under normal provisions of GST as applicable for regular dealers.
Read complete notification >> CGST-R-2/2019
Procedure to Opt for Composition Scheme by Service Providers under this Scheme:-
For Existing GST Registered Person :
A Registered person who wants to opt for payment of central tax @ 3% by availing the benefit of the above-said notification, may do so by filing intimation in the manner specified in sub-rule 3 of rule 3 of the CGST rules in FORM GST CMP-02 by selecting the category of registered person as “Any other supplier eligible for composition levy” as listed at Sl. No. 5(iii) of the said form, latest by 30th April, 2019.
Such person shall also furnish a statement in FORM GST ITC-03 in accordance with the provisions of sub-rule (3) of rule 3 of the CGST rules.
For New Registrations
Any person who applies for registration and who wants to opt for payment of central tax @ 3% by availing the benefit of the above-said notification, if eligible, may do so by indicating the option at serial no. 5 and 6.1(iii) of FORM GST REG-01 at the time of filing of application for registration.