Understanding GST Composition Scheme Regulations
This article outlines the regulations governing the GST Composition Scheme in India. It covers the procedures for taxpayers to opt into the scheme, including eligibility criteria, effective dates for registration, and conditions for participation. Key aspects like tax rates, compliance requirements, and withdrawal processes are also detailed, offering a comprehensive overview for businesses considering or operating under this simplified tax regime.
The GST Composition Scheme regulations outline the procedural requirements for opting into the scheme, including the effective date of levy, specific conditions, restrictions, validity period, and applicable tax rates.
Latest Regulatory Updates on Composition Scheme
The following are significant updates regarding the GST Composition Scheme:
July 5th, 2022
On July 5th, 2022, the deadline for GSTR-4 for FY 2021-22 was extended with a late fee waiver until July 28th, 2022, as per Notification 12/2022. Additionally, the due date for CMP-08 for the April-June 2022 quarter was extended to July 31st, 2022, under the same notification.
May 26th, 2022
According to CGST Notification no. 7/2022 issued on May 26th, 2022, late fees for delayed GSTR-4 filing for FY 2021-22 were waived if the return was submitted between May 1st and June 30th, 2022.
February 24th, 2022
By March 31st, 2022, taxpayers opting for the Composition Scheme for FY 2022-23 were required to file a declaration using Form CMP-02 on the GST portal.
May 28th, 2021
Following the 43rd GST Council meeting and a CBIC notification on May 28th, 2021, interest relief was granted for filing CMP-08 for the January-March 2021 quarter. No interest was levied until May 3rd for delays, a reduced 9% interest applied for filings between May 3rd and June 17th, and 18% thereafter. The GSTR-4 due date for FY 2020-21 was extended to July 31st, 2021. Furthermore, the maximum late fee for GSTR-4 was capped at Rs. 500 for nil returns and Rs. 2,000 for other filings.
May 1st, 2021
On May 1st, 2021, the GSTR-4 filing deadline for FY 2020-21 was moved from April 30th to May 31st, 2021. Interest charges for CMP-08 for January-March 2021, initially due April 18th, were relaxed: no interest until May 8th, a 9% rate from May 9th to May 23rd, and 18% thereafter. The deadline for newly registered composition taxpayers to file ITC-03 for FY 2021-22 was also extended to May 31st, 2021.
Notification and Commencement Date for Composition Levy
Existing Registrants from Pre-GST Era
Individuals provisionally registered under previous tax laws (like VAT, Service Tax, or Central Excise) who choose the Composition Levy must electronically submit a signed FORM GST CMP-01 either before or within 30 days of the appointed date. Should the intimation be filed after the appointed date, the registered person is prohibited from collecting taxes and must issue a bill of supply for their transactions. Additionally, FORM GST CMP-03 must be submitted within 60 days of exercising this option, detailing stock and inward supplies received from unregistered persons on the day prior to choosing the scheme.
New Applicants Seeking GST Registration for the Scheme
For new registrations under this scheme, FORM GST REG-01 must be submitted as an intimation.
Existing GST Registrants Switching to Composition Scheme
Any person already registered under GST who chooses to transition to the Composition Scheme must adhere to these steps: submit an intimation using FORM GST CMP-02 to exercise the option, and file a statement in FORM GST ITC-3 providing details of input tax credit (ITC) on inputs in stock, semi-finished, or finished goods within 60 days from the start of the relevant financial year.
Commencement Date for Composition Levy
The election to pay tax under the Composition Scheme becomes effective on different dates based on the registrant's status:
- For those previously registered under pre-GST regimes, it is the Appointed Day.
- For existing GST registrants switching to the scheme, it is the date of Filing of Intimation.
For new applicants seeking GST registration with the Composition Scheme, the option takes effect from the date of liability for registration, provided the application is submitted within thirty days of that date. In such instances, the effective date of registration aligns with the date registration is granted.
Eligibility Criteria and Limitations for Composition Levy
- Individuals choosing this scheme must not be classified as casual taxable persons or non-resident taxable persons.
- On the appointed date, goods held in stock by the person must not have been acquired from outside their state. This means the goods should not originate from:
- Interstate purchase
- Imported Goods
- A branch located outside the State
- Agents or Principals situated outside the State
- If taxpayers engage with unregistered individuals, they must either pay the applicable tax or ensure no stock is held from such dealings.
- Invoices must prominently display the phrase 'composition taxable person, not eligible to collect tax on supplies'.
- All notices and signboards prominently displayed must clearly state 'Composition Taxable Person'.
- The individual must not have manufactured goods notified by the Government during the previous financial year.
Duration of Composition Scheme Applicability
The scheme's validity is contingent on meeting the aforementioned conditions. An eligible person can voluntarily withdraw from the scheme by submitting an application. If the Proper Officer suspects a taxpayer is ineligible or has violated any rules or the Act, a show cause notice may be issued, potentially leading to an order denying continued participation in the scheme.
Applicable Tax Rates
Below are the tax rates applicable to various categories of registered individuals.
| Category | Rate of Tax (CGST + SGST/UTGST) |
|---|---|
| Manufacturers | 1% (0.5% + 0.5%) |
| Traders | 1% (0.5% + 0.5%) |
| Restaurants (not serving alcohol) | 5% (2.5% + 2.5%) |
| Service Providers (with turnover up to Rs. 50 lakhs) | 6% (3% + 3%) |
GST Composition Scheme Compliance Requirements
The GST Composition Scheme regulations stipulate various forms for specific purposes, each with its own submission deadline, as detailed below:
| Form Required | Purpose | Due Date |
|---|---|---|
| Form GST CMP-01 | To opt into the scheme by provisional GST registration holder (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 specified forms require proper signature and electronic submission via the Common Portal, either directly or through a Commissioner-designated Facilitation Centre.
Summary
Individuals selecting this scheme automatically apply it to all business locations sharing the same registered PAN. Therefore, it is not possible to register only certain business premises under the scheme. The GST Composition Scheme rules are designed to be precise and stringent for those utilizing the scheme. For more information on the Composition Scheme, including its advantages, disadvantages, and transition rules for businesses, refer to our additional articles.