Central GST Composition Scheme Regulations Explained

This article explores Chapter 2 of the Central Goods and Services Tax (CGST) Rules, which outlines the regulations for the Composition Scheme. The information is derived from official sources, providing clarity on various aspects of this taxation system. Some recent updates related to compliance dates are also included.

Prior to delving into the core rules, it's essential to be aware of the latest amendments and relaxations concerning GST compliance for taxpayers under the Composition Scheme. These updates often relate to filing deadlines and fee waivers.

Recent Compliance Updates

• July 5, 2022: The deadline for GSTR-4 for the financial year 2021-22 was extended, along with a waiver of late fees, until July 28, 2022. Similarly, the due date for CMP-08 for the April-June 2022 quarter was extended to July 31, 2022.
• May 26, 2022: A notification from the CGST department announced a waiver of late fees for GSTR-4 filings for FY 2021-22, provided the return was submitted between May 1 and June 30, 2022.
• February 24, 2022: Taxable persons intending to opt for the Composition Scheme for FY 2022-23 were required to submit a declaration in Form CMP-02 on the GST portal by March 31, 2022.
• May 28, 2021: Following the 43rd GST Council meeting, interest relief was granted for delayed CMP-08 filings for the January-March 2021 quarter. No interest was charged until May 3, while a reduced 9% interest applied until June 17, and 18% thereafter. The due date for GSTR-4 for FY 2020-21 was extended to July 31, 2021, and the maximum late fee for GSTR-4 was capped at Rs. 500 for nil returns and Rs. 2000 for other filings.
• May 1, 2021: The GSTR-4 filing deadline for FY 2020-21 was extended from April 30 to May 31, 2021. Interest charges for CMP-08 for January-March 2021 were relaxed, with no interest for filings by May 8, a 9% rate between May 9 and May 23, and 18% thereafter. The time limit for newly opted composition taxpayers to file ITC-03 for FY 2021-22 was extended to May 31, 2021.

Notification for Composition Levy Registration

Any individual granted provisional registration under GST who chooses to pay tax under Section 10 must electronically submit an intimation in FORM GST CMP-01. This must be done on the common portal, either directly or via a Facilitation Centre, before the appointed day or within thirty days thereafter, or any extended period. If the intimation is filed post-appointed day, the registered person cannot collect tax from that day but must issue bills of supply for subsequent transactions.

Individuals applying for GST registration under Rule 8(1) can indicate their choice to pay tax under Section 10 in Part B of FORM GST REG-01, which serves as the intimation.

A registered person opting for the Composition Scheme must file an electronic intimation in FORM GST CMP-02 before the start of the financial year for which the option is exercised. They must also furnish a statement in FORM GST ITC-03 within sixty days from the commencement of the relevant financial year.

Any person filing an intimation under sub-rule (1) to pay tax under Section 10 must electronically provide details of stock, including inward supplies from unregistered persons, held on the day before opting into the scheme. This is done via FORM GST CMP-03 on the common portal within sixty days of exercising the option or any extended period.

An intimation filed for any place of business in a State or Union territory is considered valid for all other businesses registered under the same Permanent Account Number (PAN).

Effective Date for Composition Levy Enrollment

The option to pay tax under Section 10 becomes effective from the beginning of the financial year if the intimation is filed under sub-rule (3) of Rule 3. If the intimation is filed under sub-rule (1) of the said rule, the option is effective from the appointed day.

An intimation made under sub-rule (2) of Rule 3 is considered only after the applicant's registration is granted, and their option to pay tax under Section 10 becomes effective from the date set under sub-rule (2) or (3) of Rule 10.

Prerequisites and Restrictions for Composition Levy

The following conditions must be met by a person choosing to pay tax under Section 10:

• The person must not be a casual taxable person or a non-resident taxable person.
• If the option is exercised under sub-rule (1) of Rule 3, the goods in stock on the appointed day must not have been acquired through inter-State trade or commerce, imported, or received from a branch or agent outside the State.
• Goods held in stock must not have been purchased from an unregistered supplier unless tax under Section 9(4) has been paid on such purchases.
• The person must pay tax under Section 9(3) or Section 9(4) on inward supplies of goods or services or both.
• The person must not have been involved in manufacturing certain notified goods during the previous financial year, as per Section 10(2)(e).
• Bills of supply issued must clearly state “composition taxable person, not eligible to collect tax on supplies” at the top.
• All notices and signboards displayed at the principal place of business and any additional business locations must prominently feature the words “composition taxable person.”

A registered person paying tax under Section 10 is not required to file a new intimation each year and can continue under the scheme as long as they comply with the Act and these rules.

Duration of Composition Levy Eligibility

The option to pay tax under Section 10 remains valid as long as all conditions specified in Section 10 and these rules are fulfilled.

If a person ceases to meet any of these conditions, they become liable to pay tax under Section 9(1) from that day onwards. They must then issue tax invoices for all subsequent taxable supplies and file an intimation for withdrawal from the scheme in FORM GST CMP-04 within seven days of the event.

A registered person wishing to withdraw from the composition scheme must file an application in FORM GST CMP-04 electronically on the common portal before the withdrawal date.

If a proper officer suspects that a registered person is ineligible for the Composition Scheme or has violated any provisions of the Act or this Chapter, they may issue a show cause notice in FORM GST CMP-05. The person must reply within fifteen days, explaining why the option to pay tax under Section 10 should not be denied.

Upon receiving a reply in FORM GST CMP-06, the proper officer will issue an order in FORM GST CMP-07 within thirty days. This order will either accept the reply or deny the option to pay tax under Section 10, effective from the date of option or the date of contravention.

Any person who has submitted an intimation for withdrawal, filed an application for withdrawal, or whose option has been denied via an order in FORM GST CMP-07, must electronically furnish a statement in FORM GST ITC-01. This statement details the stock of inputs and inputs in semi-finished or finished goods held on the date of withdrawal or denial, within thirty days from that date or the order date.

An intimation or application for withdrawal, or the denial of the option to pay tax under Section 10 for any place of business, is considered applicable to all other businesses registered under the same PAN.

Composition Levy Tax Rates

The table below outlines the rates at which eligible registered persons, under Section 10 and this Chapter, must pay tax. It is important to remember that these rates are for CGST only; the actual rates are doubled when both CGST and SGST (State Goods and Services Tax) are combined.

The specific rates depend on the category of the registered person, as defined in the relevant provisions.