COMPOSITION SCHEME

&
INPUT TAX CREDIT (ITC)
 COMPOSITION SCHEME
OBJECTIVE OF COMPOSITION SCHEME
To bring simplicity & to reduce the compliance cost for the small taxpayers.
BENEFITS OF COMPOSITION SCHEME
1. Supplier opting for composition scheme are not required to worry about classification of goods or
services, rates of GST applicable on their goods or services.
2. They are not required to raise any tax invoice; however, they need to issue a Bill of Supply in which
no tax can be charged from the recipient.
3. Yearly filing of Return (GSTR 4)
4. Quarterly Payment of Tax.

Note:
• Composition Dealers cannot avail the benefit of Input Tax Credit.
• Registration under GST is compulsory for opting for composition scheme.
 Conditions and Restrictions for
Composition scheme (Rule 5)
• He was not engaged in manufacture of notified goods u/s 10(2)(e) during the preceding FY.
• ✓ Ice cream; Pan masala; Tobacco & manufactured substitutes, Aerated Water.
▪ He shall pay tax u/s 9(3) or 9(4) (reverse charge) on Inward supply of G/&S (in addition to composition tax)
• He is neither a CTP nor NRTP.
• He shall mention words ‘composition taxable person, not eligible to collect tax on supplies’ at top of bill of
supply issued by him;
• ▪He shall mention words “composition taxable person” on every notice or signboard displayed at a
prominent place at his principal place of business & at every additional place or places of business.
• Goods held in stock by him have not been purchased from unregistered supplier.
• However, if goods are purchased from unregistered supplier, he shall pay tax on such goods on RCM basis u/s
9(4)
Validity of Composition Scheme (section 10(3)
read with rule 6)
Validity of Composition Scheme (section 10(3) read with rule 6)
Intimation of Opting for Composition Scheme (Rule 3 & 4)
 Composition levy: Section 10 of the CGST Act
2017
• Composition Scheme for Supplier of Goods (ELIGIBILITY)
 Composition Scheme: Section 10 of the CGST Act
2017
• Non- Eligibility [Sec 10(2)]
a) Supply of services other than restaurant services.
b) Supplier of goods which are not leviable to tax under GST.
c) Person Making Inter-State Supply of goods [Supplying goods outside state]
d) Persons supplying goods through ECO [who are required to collect tax u/s 52].
e) Manufacturers of Ice cream, pan masala & tobacco, Aerated Water.
f) Person who is CTP/NRTP.
• If more than one registered persons are having same PAN, registered person shall not be eligible to opt for
composition scheme unless all such registered persons opt to pay tax under composition scheme.
• There is no restriction on composition supplier to receive inter-state supply of goods or services or both.
 Composition Scheme
• Person Engaged in the marginal supply of services (other than restaurant services) [Second proviso to Sec 10(1) r/w sec
10(2)(a)]
• Fundamentally, composition scheme for goods can be availed i.r.o. goods & only restaurant service.
• However, there are cases where a manufacturer/trader is also engaged in supply of services other than restaurant service
though % of such supply of services is very small as compared to supplies of goods.
• There may also be cases where a restaurant service provider is also engaged in supplying a small percentage of other
services.
• With a view to enable such taxpayers to avail of the benefit of composition scheme for goods, second proviso to section
10(1) permits marginal supply of services [other than restaurant services] for a specified value along with the supply of
goods and/or restaurant service, as the case may be.
• Registered person opting for composition scheme are permitted to supply services (other than restaurant services) of
specified value not exceeding: [Higher of (a) or (b)]
Composition Scheme
 Composition Scheme for Service providers:
• Eligibility:
Registered person who is not eligible to pay tax u/s 10(1) & 10(2) & ▪ Aggregate turnover in Last FY ≤
Rs. 50 Lacs & who is exclusively engaged in supplying services other than restaurant services
• Rate of GST
6% (3% + 3%) of the turnover in State/UT on first supplies of G&/S upto Aggregate turnover of Rs.
50 lacs made on/after 1st April in any FY
• Non- Eligibility:
a) Supplier of goods or services which are not leviable to tax under GST.
b) Person Making Inter-State Supply of goods or services.
c) Persons supplying goods or services through ECO [who collect tax u/s 52]
d) Manufacturers of notified goods or supplier of notified services. Notified goods are: Ice cream,
pan masala & tobacco, Aerated Water.
 EXAMPLES
Q. Whether the following supplier are eligible to opt for
composition scheme:
• (a) Supplier of restaurant services (intra-state • (a) Though supplier of services of restaurant & catering
supply) – serving food & non alcoholic as well as are qualified for composition Scheme, but supplier
alcoholic beverages. engaged in making non-taxable supply is not eligible.
Supply of alcoholic beverages is non-taxable supply under
• (b) Supplier of handicraft goods (intra-state GST. Thus, restaurant serving food & non-alcoholic as well
supply). as alcoholic beverages shall not be eligible for
composition.
• (c) Mr. A is an artist. Trade Fair is organized by
• (b) Supplier of any goods (making intra-state supply) is
Bombay Exhibition in Mumbai. Mr. A wants to
eligible to opt for composition scheme. Thus, supplier of
display & sell his paintings in Trade Fair. His handicraft goods is eligible to opt for composition
turnover in Trade Fair is not likely to be more than scheme.
Rs. 15 lacs.
• (c) Mr. A is a “casual taxable person”. A casual taxable
• (d) Mr. A is in the business of manufacture of pan person making taxable supply in India has to take
masala. With effect from February 2019, he wants compulsorily registration u/s 24. For CTP, there is no
to manufacture biscuits for rural market along with threshold limit of ATO. He is liable to pay GST even if his
pan masala. He wants to opt for Composition turnover is not likely to more than Rs. 20 Lacs. As per Sec
Scheme w.e.f April 2019. His annual turnover (even 10, a casual table person is not eligible to avail
composition scheme.
after commencement of biscuits manufacture) will
not be more than Rs. 72 Lacs. • (d) Mr. A manufactures pan masala. Manufacturer of ice-
cream, pan masala & tobacco products, cannot opt for
Composition Scheme. Thus Mr. A cannot opt for
composition scheme.
 INPUT TAX CREDIT (ITC)
• Input taxes: Taxes paid on inward supply of inputs, capital goods and services. These may be
Integrated GST, Central GST, State GST or Union Territory GST. Taxes paid under reverse charge
mechanism are also input taxes.
• The credit of the above taxes is called input tax credit, that is, the taxes paid on inputs are
available as a set off against the taxes payable on outward taxable supplies.
• Section 2(63) “input tax credit” means the credit of input tax;
• In the previous tax regime, there was non- availability of credit at various points in supply chain,
leading to a cascading effect of tax i.e., tax on tax and therefore increasing the cost of goods and
services. This flaw has been removed under GST and a seamless flow of credit throughout the
value chain is therefore available consequently doing away with the cascading effect of taxes.
• To avail the benefit of ITC, it is required that the person availing such benefit is registered under
GST.
• An unregistered person is not eligible to take the benefit of ITC.
• Section 155, of the CGST Act, 2017 states that where any person claims that he is eligible or input
tax credit under this Act, the burden of proving such claim shall lie on such person.
 ELIGIBILITY AND CONDITIONS FOR TAKING INPUT TAX CREDIT
[Section16]
(1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and, in the manner, as
specified in section 49, be entitled to take credit of input tax charged on,
• any supply of goods or services or both to him,
• which are used or intended to be used in the course or furtherance of his business, and
• The said amount shall be credited to the electronic credit ledger of such person.
(2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in
respect of any supply of goods or services or both to him unless,
• (a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying
documents as may be prescribed;
ITC can be availed on the basis of any of the following documents:
• i) Invoice issued by the supplier of goods and/or services
• ii) Invoice issued by the recipient receiving goods and/or services from unregistered supplier along with proof of payment
of tax, in case of reverse charge
• iii) Debit note issued by the supplier
• iv) Bill of entry or similar document prescribed under the Customs Act, 1962
• v) Revised invoice
• vi) Document issued by the input service distributor
 INPUT TAX CREDIT (ITC)
ITC in case of goods received in lots or installments:
• Provided that where the goods against an invoice are received in lots or installments, the registered person
shall be entitled to take credit upon receipt of the last lot or installment.
(3) Where the registered person has claimed depreciation on the tax component of the cost of capital goods
and plant and machinery under the provisions of the Incometax Act, 1961, the input tax credit on the said tax
component shall not be allowed.
Due date to claim ITC
(4) A registered person shall not be entitled to take input tax credit in respect of any nvoice or debit note for
supply of goods or services or both after
• the due date of furnishing of the return under section 39 for the month of September following the end of
financial year to which such invoice or invoice relating to such debit note pertains or
• furnishing of the relevant annual return whichever is earlier.
 Apportionment of credit and blocked credits
[Section 17]
• Goods and Services Tax aims at providing seamless flow of credit throughout the supply chain. However,
below is a list of few situations as mentioned in section 17 of Central GST Act, 2017 where input tax credit
will not be available:
(1) Where the goods or services or both are used by the registered person partly for the purpose of any
business and partly for other purposes, the amount of credit shall be restricted to so much of the input tax as is
attributable to the purposes of his business.
(2) Where the goods or services or both are used by the registered person partly for effecting taxable supplies
including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for
effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input
taxes Is attributable to the said taxable supplies including zero-rated supplies
(3) The value of exempt supply under sub-section (2) shall be such as may be prescribed, and shall include
supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of
land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.
(4) A banking company or a financial institution including a non-banking financial company, engaged in
supplying services by way of accepting deposits, extending loans or advances shall have the option to either
comply with the provisions of sub-section (2), or avail of, every month, an amount equal to 50 % of the eligible
input tax credit on inputs, capital goods and input services in that month and the rest shall lapse:
 Blocked Credits [Section 17(5)]
Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect of the
following, namely:
• (a) Motor vehicles and other conveyances and related services (insurance, servicing and repair and maintenance) motor vehicles for transportation of persons
having approved seating capacity of not more than thirteen persons (including the driver), except when they are used for making the following taxable
supplies, namely:–
• (A) further supply of such motor vehicles; or
• (B) transportation of passengers; or
• (C) imparting training on driving such motor vehicles;(aa) vessels and aircraft except when they are used –
(i) for making the following taxable supplies, namely: –
• (A) further supply of such vessels or aircraft; or
• (B) transportation of passengers; or
• (C) imparting training on navigating such vessels; or
• (D) imparting training on flying such aircraft;
(ii) for transportation of goods;
• (ab) services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels or aircraft referred to in clause (a) or
clause (aa):
• Provided that the input tax credit in respect of such services shall be available –
• (i) where the motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) are used for the purposes specified therein;
• (ii) where received by a taxable person engaged –
• (I) in the manufacture of such motor vehicles, vessels or aircraft; or
• (II) in the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him;
 Blocked Credits
Food & beverages, outdoor catering, health services and other services
• (i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting
or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes
specified therein, life insurance and health insurance:
• (ii) membership of a club, health and fitness centre; and
• (iii) travel benefits extended to employees on vacation such as leave or home travel concession:
Works contract services for construction of immovable property [Clause (c) of section 17(5)]
• (c) works contract services when supplied for construction of an immovable property (other than plant and machinery)
except where it is an input service for further supply of works contract service;
Self-construction of immovable property [Clause (d) of section 17(5)]
• (d) goods or services or both received by a taxable person for construction of an immovable property (other than plant or
machinery) on his own account including when such goods or services or both are used in the course or furtherance of
business.