Small taxpayers with an aggregate turnover in the preceding financial year not exceeding up to Rs 1.5 Crore are eligible for composition levy. Under the scheme, a taxpayer has to pay tax as a percentage of his turnover in a state or union territory during the year without the benefit of Input Tax Credit (ITC). The rate of tax for CGST and SGST under Composition levy scheme is as under:
Manufacturer = 2% (1% CGST and 1% SGST)Trader/Supplier/Vendor of Goods = 1% (0.5% CGST and 0.5% SGST)Restaurant Service only = 5% (2.5% CGST and 2.5% SGST)
A Manufacturer, Trader/Supplier/Vendor of Goods who has opted for composition levy cannot collect any tax from the recipient and cannot issue a Taxable Invoice as such. Instead of Invoice, such Taxpayer has to raise a Bill of Supply. A small taxpayer may not opt for composition levy even if his aggregate turnover in a financial year is within Rs 1.5 Crore. No service other than Restaurant Services is eligible for composition levy.
Composition Levy – Why
Indian Business Canvas – Unorganized Sector – Small / Not So Educated Entrepreneurs (Fundamental Right to do business as guaranteed under the Constitution of India (Article 14-19)) Tax Payer Point of View – Legacy of Cash Transactions – Not capable of keeping elaborate records – Easy Compliance Tax Collector Point of View – Cost of collection / Administration, Expanding Tax Base Solution – Composition Scheme, the registered person has the option to pay tax at a specified % of the turnover, without entering the credit chain (applicable only for persons with turnover up to a certain threshold limit)
Composition Levy – Present Regime
No provisions for composition scheme in Excise Duty LawNo composition scheme in Service Tax Law at present i.e. after negative list ( Before 01.07.2012 – Optional Scheme for Works Contract Service – Work Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 Notification 32/2007 w.e.f. 01-06-2007Sales Tax – provisions are present in VAT Laws of major states State Subject – Vary from state to state Turnover limit and the tax rate (1% to 4%) – Not even in some state Typical Business – Small Retailers, Restaurants, Hotels, Caterers, Bakery, Canteens, Clubs Existing Scheme – Main Restrictions Can’t collect tax from customers – Continued in GST Can’t claim input tax deduction on purchases – Continued in GST Can’t do interstate procurement of goods – Relaxed in GST Optional Scheme for registered taxable personPermission from the proper officer of the Central or State GovernmentPay an amount in lieu of tax; minimum rate to be; 2.5% of the turnover in case of manufacturers; 1% of the turnover in other cases of the turnover in a State during the year No tax to be collected (to be borne by the person out of the sales proceeds)No input Tax Credit available
Applicability
Restrictions / Limitations
No Composition Option in the following specific cases RCM supplies – Value of supplies on which tax is levied on reverse charge basis
Services Supplied Any / all services (includes goods treated as supply of services by Schedule II) Goods Supplied Non Taxable Goods Inter-state outward supplies Through e-commerce operators(Section 56) Notified goods manufactured by the supplier
All registered taxable persons, having the same PAN as held by the said taxable person, has to opt to pay amount in lie of tax under the scheme If permission granted to a registered taxable person stands withdrawn from the day on which his aggregate turnover during a financial year exceeds 50 lacs
Easy of doing business
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