Composition Scheme
Q1. What is the rate of tax applicable to a taxable person opting to pay tax under composition scheme.
- The rate of tax applicable to a taxable person opting to pay tax under composition scheme is not yet notified . However, Section 10(1) of the CGST Act, 2017 prescribes, subject to such conditions and restrictions as may be prescribed, that the rate of tax shall not exceed:
- 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
Q2. Can every taxable person opt to pay tax under composition scheme.
- No. The registered taxable person whose aggregate turnover in the preceding financial year does not exceed fifty lakhs rupees may opt to pay tax subject to satisfaction of the following conditions:
- he is not engaged in the supply of services other than supplies referred to in clause (b) of paragraph 6 of Schedule II
- he is not engaged in making any supply of goods which are not leviable to tax under this Act;
- he is not engaged in making any inter-State outward supplies of goods;
- he is not engaged in making any supply of goods through an electronic commerce operator who is required to collect tax at source under section 52;
- he is not a manufacturer of such goods as may be notified by the Government on the recommendations of the Council:
Q3. Whether a supplier of services is eligible to pay tax under composition scheme.
No. A supplier of services is not eligible to opt for composition scheme. However, a supplier supplying composite supply involving supply of service or goods being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption) is eligible to opt for payment of taxes under composition scheme.
Q4. A taxable person having same PAN can opt to pay tax under composition scheme by seeking separate registration for branches.
No. A registered person shall not be eligible to opt for the composition scheme unless all such registered persons (branches having separate registration under a single PAN) opt to pay tax under composition scheme.
Q5. Whether a taxable person under composition Scheme eligible to claim input tax credit.
No, a taxable person under composition scheme is not eligible to claim input tax credit.
Q6. Can a customer who buys from a taxable person who is under composition scheme claim composition tax as input credit.
No. The recipient is not eligible to take input tax credit of composition tax paid. Moreover, a taxable person paying taxes under composition scheme is not entitled to collect taxes from the recipient in terms of Section 10(4) of the CGST Act, 2017. Accordingly, there does not arise a question for the recipient to claim input tax credit.
Q7. What is aggregate turnover.
In terms of Section 2(6) of the CGST Act, 2017, "aggregate turnover" means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess;
Q8. A taxable person can still pay tax under composition scheme even after the turnover in the current financial year exceeds fifty lakh rupees.
In terms of Section 10(3), the option availed for paying tax under composition scheme Levy and Collection of Tax 7 Indirect Taxes Committee shall lapse with effect from the day on which his aggregate turnover during a financial year exceeds fifty lakh rupees.
Q9. What are the penal consequences if a taxable person violates the conditions prescribed for composition scheme.
Following are the consequence for non-compliance with the conditions specified therein:
- shall be liable to pay additional taxes at the rates applicable to regular taxable person;
- shall be liable to penalty
- the amount of tax and penalty shall be recovered in terms of Section 73 & 74 of CGST Act, 2017. Power to grant exemption from tax (Section 11)
Q10. Whether Council has powers to grant exemption from payment of taxes.
No. The power to grant exemption is vested with the Government. In other words, the Government by notification on the recommendations of the council may grant exemption from tax subject to such conditions as may be notified..
