GST Composition Levy – Eligibility & Application Procedure
Small businesses are the backbones of the Indian economy and there are an estimated 55 million Micro, Small and Medium Enterprises operating in India. The rollout of GST would have an extensive impact on over ten million SME businesses operating in India and would require compliance under the GST regime. However, many small businesses would not have the expertise or the capability to comply with many of the GST regulations, unlike medium and large sized businesses. Hence, to make GST compliance easy for micro, small and medium enterprises operating in India, there exists a GST composition levy scheme. In this article, we look at the GST Composition Levy scheme in detail along with eligibility criteria and application procedure.
GST Composition Levy
The concept of Composition Levy is mentioned in Section 10 of the GST Act as follows:
Notwithstanding anything to the contrary contained in this Act but subject to the provisions of sub-sections (3) and (4) of section 9, a registered person, whose aggregate turnover in the preceding financial year did not exceed seventy five lakh rupees, may opt to pay, in lieu of the tax payable by him, an amount calculated at such rate as may be prescribed, but not exceeding,
one per cent of the turnover in State or turnover in Union territory in case of a manufacturer
two and a half per cent of the turnover in State or turnover in Union territory in case of persons engaged in making supplies referred to in clause (b) of paragraph 6 of Schedule II, and
half per cent. of the turnover in State or turnover in Union territory in case of other suppliers
Hence, any business registered in India with an aggregate sales turnover of less than Rs.75 lakhs in the preceding financial year can pay their GST liability in the form of a composition levy at prescribed rates. The aggregate sales turnover criteria for GST composition scheme was increased from Rs.50 lakhs to Rs.75 lakhs.
In case of manufacturers, the composition levy has been fixed at 1% of the aggregate turnover in the State or Union Territory.
In case of businesses involved in providing of food or drinks or other items for human consumption and not being alcohol, the composition levy has been fixed at 2.5%. Many small restaurants and eateries would qualify under this criteria as Clause (b) of Paragraph 6 of Schedule II states:
Supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration.
Finally, any other suppliers who do not fall under any of the categories above and is eligible for the composition levy scheme would be taxed at 0.5% of the turnover in State or Union Territory.
Eligibility for GST Composition Scheme
Only small businesses that comply with the following conditions would be eligible for payment of GST liability through the GST Composition Scheme. The GST composition scheme has many stringent regulations and its important for all business owners to understand the nuances of GST composition scheme, prior to making an application for registration.
- The taxpayer cannot be a casual taxable person nor a non-resident taxable person
- “Casual taxable person” means a person who occasionally undertakes transactions involving the supply of goods or services or both in the course or furtherance of business, whether as principal, agent or in any other capacity, in a State or a Union territory where he has no fixed place of business.
- “Non-resident taxable person” means any person who occasionally undertakes transactions involving supply of goods or services or both, whether as principal or agent or in any other capacity, but who has no fixed place of business or residence in India;
- The goods held in stock by the taxpayer on the date GST came into force should not have been purchased in the course of inter-state trade or commerce or imported from a place outside India or received from a branch of the business situated outside the State or from the taxpayer’s agent or principal outside the State.
- Thus only businesses that have stock that has been purchased within the State would be eligible for the composition scheme.
- The goods held in stock by the taxpayer has should not have been purchased from an unregistered supplier and if purchased from an unregistered supplier, the taxpayer must then have paid GST on the purchase on reverse charge basis.
- Sub-section (4) of Section 9 states “The central tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.”
- On the inward supply of goods or services or both, a taxpayer should have paid tax on reverse charge basis.
- Sub-section (3) of Section 9 states “The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.”
- The taxpayer should not have been engaged in the manufacture of goods as notified under clause (e) of subsection (2) of section 10, during the preceding financial year.
- Clause (e) of subsection (2) of Section 10 states “he is not a manufacturer of such goods as may be notified by the Government on the recommendations of the Council”
- The taxpayer must mention the words “composition taxable person, not eligible to collect tax on supplies” at the top of the bill of supply issued by him.
- The taxpayer should mention the words “composition taxable person” on every notice or signboard displayed at a prominent place at his principal place of business and at every additional place or places of business.
Applying for GST Composition Levy
The procedure for applying for GST composition levy differs from persons migrated to GST having provisional GST registration and those obtaining fresh GST registration.
For Taxpayers Who Migrated to GST
Any person who has been granted a provisional GST registration can apply for the GST Composition Levy scheme by filing Form GST CMP-01. Form GST CMP-01 can be filed on the GST Common Portal or a GST Facilitation Centre with the authorised signatory’s sign. Form GST CMP-01 is to be used by persons having provisional GST registration, who migrated from a service tax or VAT or central excise or other such registration subsumed under GST.