Central Board of Excise and Customs releases Frequently Asked Questions on Composition Levy.
Q 1. What is composition levy under GST?
Ans. The composition levy is an alternative method of levy of tax designed for small taxpayers whose turnover is up to Rs. 75 lakhs ( Rs. 50 lakhs in case of few States). The objective of composition scheme is to bring simplicity and to reduce the compliance cost for the small taxpayers. Moreover, it is optional and the eligible person opting to pay tax under this scheme can pay tax at a prescribed percentage of his turnover every quarter, instead of paying tax at normal rate.
Q 2. What is the specified rate of composition levy?
| S.No. | Category of Registered person | Rate of Tax |
| 1. | Manufacturers, other than manufacturers of such goods as may be notified by the Government (Ice cream, Pan Masala, Tobbacco prodcuts etc.) | 2% ( 1% Central tax plus 1% State tax) of the turnover |
| 2. | Restaurant Services | 5% ( 2.5% Central tax plus 2.5% SGST) of the turnover |
| 3. | Traders or any other supplier eligible for composition levy | 1% ( 0.5% Central tax plus 0.5% State tax) of the turnover |
Q 3. What is the eligibility category for opting for composition levy? Which are the Special Category States in which the turnover limit for Composition Levy for Central tax and State tax purpose shall be Rs. 50 lakhs?
Ans. Composition scheme is a scheme for payment of GST available to small taxpayers whose aggregate turnover in the preceding financial year did not cross Rs. 75 lakhs. In the case of the following States, the limit of turnover is Rs. 50 lakhs:-
a) Arunachal Pradesh
b) Assam
c) Manipur
d) Meghalaya
e) Mizoram
f) Nagaland
g) Sikkim
h) Tripura
i) Himachal Pradesh
Q 4. Who are the persons not eligible for composition scheme?
Ans. Following persons are not allowed to opt for the composition scheme:
a) a casual taxable person or a non-resident taxable person;
b) suppliers whose aggregate turnover in the preceding financial year crossed Rs. 75 lakhs;
c) supplier who has purchased any goods or servcies from unregistered supplier unless he has paid GST on such goods or services on reverse charge basis;
d) supplier of services, other than restaurant service;
e) persons supplying goods which are not taxable under GST law;
f) persons making any inter-State outward supplies of goods;
g) suppliers making any supply of goods through an electronic commerce operator who is required to collect tax at source under section 52; and
h) a manufacturer of following goods:
| S.No. | Classification (Tariff item/ Chapter) | Descriptions |
| 1. | 2105 00 00 | Ice cream and other edible ice, whether or not containing cocoa |
| 2. | 2106 90 20 | Pan masala |
| 3. | 24 | Tobacco and manufactured tobacco substitutes |
Note: There is no restriction on procuring goods from inter-state suppliers by persons opting for the composition scheme
Q 5. When will a person opting for composition levy pay tax?
Ans. A person opting for composition levy will have to pay tax on quarterly basis before 18th of the month succeeding the quarter during which the supplies were made.
Q 6. A person availing composition scheme during a financial year crosses the turnover of Rs.75 lakhs/50 lakhs during the course of the year i.e. say he crosses the turnover of Rs.75 lakhs/50 lakhs in December? Will he be allowed to pay tax under composition scheme for the remainder of the year i.e. till 31st March?
Ans. No. The option to pay tax under composition scheme lapses from the day on which his aggregate turnover during the financial year exceeds the specified limit (Rs. 75 lakhs / Rs. 50 lakhs). He is rqeuired to file an intimation for withdrawal from the scheme in FORM GST CMP-04 within seven days from the day on which the threshold limit has been crossed.
However, such person shall be allowed to avail the input tax credit in respect of the stock of inputs and inputs contained in semi-finished or finished goods held in stock by him and on capital goods held by him on the date of withdrawal and furnish a statement within 30 days of withdrawal containing the details of such stock held in FORM GST ITC-01 on the common portal.
Q 7. How will the aggregate turnover be computed for the purpose of composition?
Ans. Aggregate turnover will be computed on the basis of turnover on an all India basis and will include value of all taxable supplies, exempt supplies and exports made by all persons with same PAN, but would exclude inward supplies under reverse charge as well as central, State/Union Territory and Integrated taxes and cess.
Q 8. Can a person who has opted to pay tax under the composition scheme avail Input Tax Credit on his inward supplies?
Ans. No. A taxable person opting to pay tax under the composition scheme is out of the credit chain. He cannot take credit on his input supplies. When he switch over from composition scheme to normal scheme, eligible credit on the date of transition would be allowed (refer Q 6 above).
Q 9. Can a registered person, who purchases goods from a taxable person paying tax under the composition scheme, avail credit of tax paid on purchases made from the composition dealer?
Ans. No as the composition dealer cannot collect tax paid by him on outward supplies from his customers, the registered person making purchases from a taxable person paying tax under the composition scheme cannot avail credit.
Q 10. Can a person paying tax under the composition scheme issue a tax invoice under GST?
Ans. No. He can issue a bill of supply in lieu of tax invoice.
Q 11. Are monthly returns required to be filed by the person opting to pay tax under the composition scheme?
Ans. No. Such persons need to electronically file quarterly returns in Form GSTR-4 on the GSTN common portal by the 18th of the month succeeding the quarter. For example return in respect of supplies made during July, 2017 to September, 2017 is required to be filed by 18th October, 2017.
Q 12. What are the basic information that need to be furnished in GSTR-4?
Ans. It would contain details of the turnover in the State or Union territory, inward supplies of goods or services or both and tax payable.
