Guidelines for the Goods and Services Tax Composition Scheme
This article provides a comprehensive overview of the Goods and Services Tax (GST) Composition Scheme in India. It details the procedural aspects for businesses to opt into the scheme, including rules for existing registrants and new applicants, along with the effective dates for the levy. The content also outlines the essential conditions, restrictions, and validity criteria for participants, concluding with a breakdown of applicable tax rates and compliance forms required under the scheme.
The GST Composition Scheme rules outline the procedural compliance for opting into the scheme, determining the effective date, defining conditions and restrictions, establishing validity, and specifying tax rates. Recent updates to these rules cover extensions for various form filings and interest relief.
Recent Updates
- July 5, 2022: The deadline for GSTR-4 for FY 2021-22 was extended with a late fee waiver until July 28, 2022, as per Notification 12/2022. Additionally, the CMP-08 due date for April-June 2022 was extended to July 31, 2022.
- May 26, 2022: CGST Notification no. 7/2022 waived the late fee for GSTR-4 filings for FY 2021-22 submitted between May 1 and June 30, 2022.
- February 24, 2022: Taxable individuals under the Composition Scheme, or those intending to join for FY 2022-23, were required to file a declaration in Form CMP-02 on the GST portal by March 31, 2022.
- May 28, 2021: Following the 43rd GST Council meeting and CBIC notification:
- Interest relief was provided for CMP-08 filings for the Jan-March 2021 quarter. No interest was charged until May 3; a 9% reduced interest applied for filings between May 4 and June 17, with 18% thereafter.
- The GSTR-4 filing deadline for FY 2020-21 was extended to July 31, 2021.
- The maximum late fee for GSTR-4 was capped at Rs. 500 for nil returns and Rs. 2,000 for other returns.
- May 1, 2021:
- The GSTR-4 filing deadline for FY 2020-21 was extended from April 30, 2021, to May 31, 2021.
- Form CMP-08 for Jan-March 2021, due by April 18, 2021, received interest charge relaxation. No interest applied for filings on or before May 8, reduced to 9% between May 9 and May 23, and 18% thereafter.
- The deadline for newly opted composition taxable individuals to file ITC-03 for FY 2021-22 was extended to May 31, 2021.
Intimation and Effective Date for Composition Levy
For Existing Registrants Under Pre-GST Regime
Individuals provisionally registered under previous tax laws (like VAT, Service Tax, Central Excise) who choose the Composition Levy must submit an electronic intimation in FORM GST CMP-01, duly signed, either before or within 30 days of the appointed date.
If this intimation is submitted after the appointed date, the registered person:
- Will not be permitted to collect taxes.
- Must issue a bill of supply for their provisions.
Additionally, FORM GST CMP-03 is required within 60 days of exercising this option, detailing:
- Stock information.
- Inward supply of goods received from unregistered individuals held on the day before the option was exercised.
For New Applicants Opting into the Scheme Under GST
New applicants seeking GST registration who wish to opt for the scheme must file an intimation using FORM GST REG-01.
For Existing GST Registrants Transitioning to the Composition Scheme
Registered individuals under GST who choose to switch to the Composition Scheme must adhere to the following:
- File an intimation in FORM GST CMP-02 to exercise the option.
- Submit a statement in FORM GST ITC-3 with details of Input Tax Credit (ITC) related to inputs in stock, or contained in semi-finished or finished goods, within 60 days of the relevant financial year's commencement.
Effective Date for Composition Levy
The option to pay tax under the Composition Scheme becomes effective on different dates:
- For existing registrants under the pre-GST regime: The Appointed Day.
- For GST registered individuals switching to the Composition Scheme: The date of Filing of Intimation.
- For new applicants opting into the scheme under GST:
- If the registration application was submitted within thirty days of becoming liable for registration, the effective date is that particular date.
- In such scenarios, the registration's effective date will be the date when registration is granted.
Conditions and Restrictions for Composition Levy
Several conditions and restrictions apply to individuals choosing the Composition Levy:
- The person opting for this scheme must not be a casual taxable person or a non-resident taxable person.
- Goods held in stock on the appointed date must not have been acquired from outside their state. Therefore, these goods should not include:
- Interstate purchases.
- Imported goods.
- Goods from a branch located outside the state.
- Goods from agents or principals situated outside the state.
- If taxpayers engage with unregistered persons, tax must be paid, or no such stock should be held.
- Invoices must clearly display the words: “composition taxable person, not eligible to collect tax on supplies.”
- Every notice and signboard displayed prominently must bear the words “Composition Taxable Person.”
- The individual must not have been a manufacturer of government-notified goods during the preceding financial year.
Validity of Composition Levy
The scheme's validity depends on meeting the specified conditions. However, an eligible person can also choose to exit the scheme by filing an application. If the Proper Officer suspects that a taxpayer is ineligible for the scheme or has violated any rules or the Act, they may issue a show-cause notice, which could be followed by an order denying the scheme's benefits.
Rate of Tax
The tax rates applicable to various categories of registered individuals under the Composition Scheme are detailed below:
| Taxpayer Category | Rate (CGST + SGST/UTGST) |
|---|---|
| Manufacturers | 1% (0.5% + 0.5%) |
| Traders | 1% (0.5% + 0.5%) |
| Restaurants | 5% (2.5% + 2.5%) |
| Service Providers | 6% (3% + 3%) |
Compliance Under GST Composition Scheme Rules
The GST Composition Scheme Rules mandate the submission of various forms for specific purposes, each with a corresponding due date:
| Form Required | Purpose | Due Date |
|---|---|---|
| Form GST CMP-01 | To opt into the scheme by provisional GST registration holders (from VAT regime) | Prior to appointed date or within 30 days of the said date |
| Form GST CMP-02 | Intimation of willingness to opt into the scheme for GST registered normal taxpayers | Prior to commencement of Financial Year |
| Form GST CMP-03 | Details of stock and inward supplies from registered and unregistered persons | Within 90 days of the exercise of the option |
| Form GST CMP-04 | Intimation of withdrawal from the scheme | Within 7 days of the occurrence of the event |
| Form GST CMP-05 | Show cause notice on contravention of Rules or Act by a proper officer | On any contravention |
| Form GST CMP-06 | Reply to show cause notice | Within 15 days |
| Form GST CMP-07 | Issue of Order | Within 30 days |
| Form GST REG-01 | Registration under Composition scheme | Prior to the appointed date |
| Form GST ITC-01 | Details of inputs in stocks, semi-finished, and finished goods | 30 days of withdrawing option |
| Form GST ITC-03 | Intimation of ITC available | Within 60 days of commencement of the financial year |
All these forms must be electronically filed on the Common Portal, either directly or via a Commissioner-notified Facilitation Centre, and must be duly signed.
Conclusion
Any individual selecting the Composition Scheme is considered to have opted for it across all their business locations sharing the same registered PAN. Therefore, you cannot choose for only specific business places to be registered under this scheme. The GST Composition Scheme rules are designed to be precise and stringent for those utilizing this option.
To learn more about the Composition Scheme, its benefits, drawbacks, and Transition Provisions for your business, explore our other articles.