FAQ- Composition Scheme

Can the customer who buys from a taxable person who is under the composition scheme claim composition tax as input tax credit?

Ans. No, customer who buys goods from taxable person who is under composition scheme is not eligible for composition input tax credit because a composition scheme supplier cannot issue a tax invoice

Can composition tax be collected from customers?

Ans. No, the taxable person under composition scheme is restricted from collecting tax. It means that a composition scheme supplier cannot issue a tax invoice.

What is the threshold for opting to pay tax under the composition scheme?

Ans. The threshold for composition scheme is Rs. 50 Lakhs of aggregate turnover in financial year

Can composition scheme be availed if the taxable person effects inter-State supplies?

Ans. No, composition scheme is applicable subject to the condition that the taxable person does not affect inter- state supplies.

Can the taxable person under composition scheme claim input tax credit?

Ans. No, taxable person under composition scheme is not eligible to claim input tax credit.

What is the minimum rate of tax prescribed for composition scheme?

Ans. 2.5% in case of manufacturers and 1% in case of others

What is the scope of composition scheme under GST?

Ans. Small taxpayers with an aggregate turnover in a financial year up to [Rs. 50 lakhs] shall be eligible for composition levy. Under the scheme, a taxpayer shall pay tax as a percentage of his turnover during the year without the benefit of ITC. The floor rate of tax for CGST and SGST shall not be less than [2.5% in case of manufacturers and 1% in case of others]. A tax payer opting for composition levy shall not collect any tax from his customers. Tax payers making inter- state supplies or paying tax on reverse charge basis shall not be eligible for composition scheme.

Whether the composition scheme will be optional or compulsory?

Ans. Optional.

Will a taxable person be eligible to opt for composition scheme only for one out of 3 business verticals?

Ans. No, composition scheme would become applicable for all the business verticals/registrations which are separately held by the person with same PAN.

How to compute ‘aggregate turnover’ to determine eligibility for composition scheme?

Ans. The methodology to compute aggregate turnover is given in Section 2(6). Accordingly, ‘aggregate turnover’ means ‘Value of all supplies (taxable and non-taxable supplies including interstate supplies + Exempt supplies + Exports+) and it excludes Taxes levied under CGST Act, SGST Act and IGST Act, Value of inward supplies + Value of supplies taxable under reverse charge of a person having the same PAN.

What are the penal consequences if a taxable person violates the condition and is not eligible for payment of tax under the Composition scheme?

Ans. Taxable person who was not eligible for the composition scheme would be liable to pay tax, interest and in addition he shall also be liable to a penalty specified in section 66 or 67(Section 9(4) of the MGL).

Do tax payers under the composition scheme also need to file GSTR-1 and GSTR-2?

Ans. No. Composition tax payers do not need to file any statement of outward or inward supplies. They have to file a quarterly return in Form GSTR-4 by the 1st of the month after the end of the quarter. Since they are not eligible for any input tax credit, there is no relevance of GSTR-2 for them and since they do not pass on any credit to their recipients, there is no relevance of GSTR-1 for them. In their return, they have to declare summary details of their outward supplies along with the details of tax payment. They also have to give details of their purchases in their quarterly return itself, most of which will be auto populated.