GST Composition Levy – Eligibility and Application Procedure

Basics Of GST

 

 

In our previous posts we have been discussing a lot about basics of GST. We would now be discussing about GST composition levy. As we have been hearing about in newspapers and through other media as well that there are an estimated 55 million micro and SME businesses operating in India. GST tax would have an impact on at least 10 million of these businesses. These businesses would be taxable under GST tax. As this is  a new tax many small businesses are not aware about how to go GST tax, its registration, filing and compliance.

GST Composition Levy

GST composition levy has been stated under section 10 of GST tax act and it says the following

A GST registered person, whose aggregate turnover in the previous financial year was less than 50 lakh rupees can choose to pay a certain tax according to rates prescribed below so as to avoid hassles

 

  • Manufacturer can pay 1% of the aggregate turnover whether it is a state or UT
  • 2.5% of turnover if the person is related to being a supplier as in clause (b) paragraph 6, schedule II. This is applicable both in case of State and Ut
  • 0.5% of turnover in case of other suppliers be it state or UT

Therefore, there is no need to worry for small businesses. If they have turnover less than 50 lakhs they can simply pay GST tax according to the GST composition levy.

2.5% GST composite levy is applicable for services like small restaurants and eateries except alcohol. These would qualify under point no 2 as mentioned above.

Eligibility for GST Composition Scheme

There are certain conditions set for being eligible for GST composition scheme. Only if these small businesses meet the criteria they can take the benefit of GST Composition Scheme.

  1. The taxpayer should not come under the definition of casual taxpayer or non-resident
    • Casual taxable person can be defined as any person who occasionally undertakes sale of goods or services in any capacity in a state or UT where he doesn’t have fixed place or address of business
    • If a person undertakes occasionally sale of goods or services but doesn’t have fixe business place or address in India, then he would be known as nonresident taxpayer.
  1. Goods should not have been purchased in any inter-state activity or any import from outside the country or from branch, principal, or agent outside the state. The goods must be from the same state to take the benefit of GST composition scheme.
  2. Unregistered supplier should not have been used for purchase of good and if it an unregistered supplier under GST, then the taxpayer must pay GST tax on reverse charge basis to benefit from this composition levy scheme.  This is clarified under sub section 4 of section 9 of GST Act
  1. The person should follow subsection 3 of section 9 which clearly states that there might be certain categories on which tax would be payable on reverse charge basis by the person who has received the goods or services On the inward supply of goods or services or both, taxpayer should have paid tax under reverse charge basis and same provisions will be applicable to him like when he provides that goods or service.
  2. The person registered under GST should not have been involved in manufacturing or activities that have been mentioned in clause e sub section 2 section 9 of the GST Act
  3. The person registered under GST should clearly state on bill of supply or invoice that he is “composition taxable person”, not eligible to collect tax on supplies”
  4. The person registered under GST should clearly state on bill of supply or invoice that he is “composition taxable person”, not eligible to collect tax on supplies”

Application Procedure for GST Composition Levy

The application procedure for GST composite levy is different from other sections like registering under GST to GST filing. Now let’s have a look at it.

For Existing Taxpayers who have migrated to GST tax

For people who have migrated to GST tax and have been granted a provisional GST registration can fill the form GST CMP-01. This form can either be filed on GST common portal or at facilitation center decided by the government.

This post would help you understand basics of GST anf GST composite scheme
GST composition scheme- Form GST CMP-01

GST form CMP-01 must be filed within 30 days of GST coming into force or by the extended date as may be decided by the authorities. GST form CMP-01 is for those who want to register for GST composite levy. There is an additional requirement of filling Form CMP-03 which is for describing your existing stock details along with details of inward supply from unregistered person on the day before you want to be a part of GST composite levy.

GST composite levy – Form CMP-03

For Taxpayers Who Obtain Fresh GST Registration

There might be persons who registered under GST after it came into force i.e. new businesses or businesses that were not covered in earlier taxes. Form GST CMP-02 would need to be filled by such persons at the time of GST registration. The form must be filed before the financial year for which GST Composition Levy has to be adopted.

Form GST ITC-03 is also required to be filed within 60 days when the person starts getting taxed under GST composite levy.

This image explain basics of GST and helps in knowing the GST tax in a better way
GST composition scheme- Form CMP-02

Validity of GST Composition Levy Registration

The benefit of GST composition Levy can be enjoyed as long as eligibility criteria are met for the same. The day the business stops meeting this eligibility it can no longer enjoy the benefit. As soon as business becomes ineligible same needs to informed to the authorities by filing form GST CMP-04

 

For reading more about GST tax and how you can smoothen your business in terms of taxes you should go through our basics of GST series. In case you need any help regarding the GST composition levy you can contact The Buzz Stand Team.

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