JUNE 17, 2016

By Mayank Wadhera, CA

A Taxpayer can apply for Composition scheme either at the time of taking fresh registration or he can opt for composition scheme after being registered as a Normal Taxpayer. The opting of composition scheme in the latter case can be applied only before the starting of the financial year i.e. Switchover from Normal Taxpayer to composite taxpayer shall not be allowed in between the financial year.

The composite taxpayer shall not be allowed to take any credit on the inward supplies received by them on which they have paid taxes. And they shall also not be authorized to collect the taxes from the recipients of their supplies.

The prescribed composition tax rate to be paid on the outward supplies of Composite taxpayers would be at least 1% as per the Draft law.

In case the taxpayer is doing any inter-state supplies of goods and/or services then no permission for opting of composition shall be granted.

The prescribed amount of turnover for taking registration as a normal taxpayer is INR 10 lakhs (5lakhs for North Eastern states) or more.

In order to opt for composition scheme the total aggregate turnover of the taxable person should not exceed INR 50 lakhs.

The definition of "aggregate turnover" as per section 2(6) of Draft GST law: Aggregate turnover means the aggregate value of all taxable and non-taxable supplies, exempt supplies and exports of goods and/or services of a person having the same PAN, to be computed on all India basis and excludes taxes, if any, charged under the CGST Act, SGST Act and the IGST Act, as the case may be;

Under GST regime all the taxpayers have to take registration w.r.t all states from where they are supplying goods and/or services. So, this will result in taking multiple registrations.

The GSTIN is a Unique identifier granted for all such registrations that will vary based on the state codes and other parameters but PAN will remain same across all GSTIN.In order to identify the total number of registrations of a particular organization the PAN will be considered as common identifier to calculate total number of registrations taken by such organization in India under GST and aggregate turnover reported by all the GSTINs having same PAN will be considered to calculate the limit of INR 50 lakhs.

The requirement of the provision of draft law clearly states that in case any of the premise (s) having same PAN has/have not opted for composition scheme, then the benefits of the composition scheme can't be availed by other premises.

Conclusion:

Composition scheme can't be opted in the following situations:

1. Aggregate turnover of all premises (GSTINs) with same PAN exceeds the prescribed limit of INR 50 lakhs

2. Any of the premise of the Organization having the same PAN is registered as a Normal taxpayer .

3. In case taxpayer is doing any inter-state supplies of goods and/or services.

In case taxpayer opts for composition scheme and has been granted permission for such registration and later on any of the above 3 condition(s) is/are attracted then he has to mandatorily convert from Composite taxpayer to Normal Taxpayer

Provisions for taxpayers who are registered as normal taxpayer under previous Act but have opted composition scheme under the GST law:

Where a taxable person has the amount of eligible Input tax credit in a return, furnished under the earlier law and he switches over to the composition scheme as per section 8 of Draft GST law, he shall pay an amount against the input tax credit forming part of the inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date of such switch over, by making a debit in his Input tax credit ledger or cash ledger, the balance of credit, if any lying in his Input tax credit ledger w.r.t. previous Act shall lapse.

Eg: Assuming GST law is applicable from 01 st April 2017 and the taxpayer who is a registered VAT dealer under DVAT Act opts for Composition scheme under Section 8 of GST law. He has a VAT input tax credit of INR 1,00,000 available on that day and the VAT input tax credit that is forming part of his Inputs, Semi-finished and finished products lying with him on such switchover date is INR 60,000. Then he shall be required to pass a Debit entry of INR 60,000 from his electronic Input Tax Credit ledger and/or electronic Cash ledger to be maintained under GST law. The balance of INR 40,000 shall lapse.

Compliance and filing requirements on taxpayers opting for Composition scheme

- A quarterly return having the details of all inward supplies, Imports, Outward is to be filed within 18 days of the end of the Quarter

- An Annual return in simplified form is to be filed till 31 st December of the corresponding financial year

(Note: Please refer Section 2(6), Section 8 and Section 147 of the Draft GST law for more clarity on the provisions. The article has been prepared based on the understanding of the Draft Model GST law released by the Department of Revenue on 14th June'2016 and Process document of Registration issued in October 2015.)