30 Mar 2019Posted By: Mudit Handa

What Challenges can be there in the New GST Composition Scheme?

As we all know that at the 32nd GST Council meeting, it was decided to introduce the all-new GST Composition Scheme for services & mixed supplies. This new GST Composition Scheme will be effective from 1st April 2019.

According to the GST experts, there are certain loopholes in this Composition Scheme, that might pose some challenges in the future.

In order to understand those shortcomings, we must first discuss the new Composition Scheme in brief.


What is the new GST Composition Scheme?

The new GST Composition Scheme that was proposed by the GST Council in its 32nd meeting is for the service sector and the dealers of mixed supplies of goods & services.

  • Under this, the threshold for GST Registration shall be ₹50 lakhs.

  • The GST tariff rate shall be fixed at 6%, categorised as 3% CGST + 3% SGST.

  • The newly proposed GST composition scheme shall apply to both Service Providers as well as the vendors of the mixed supplies of Goods and Services, who are eligible for Composition Scheme u/s 10 of CGST Act 2017.

  • Under this scheme, taxpayers shall fulfil only Annual GST return filing procedure in FORM GSTR-9A, and need not file quarterly return GSTR-4.

  • However, they would require to incur GST liability on a quarterly basis along with a Simple Declaration.

  • This new composition scheme shall apply from 1st April 2019.

Here’s the 


What are the issues & challenges in new Composition Scheme?

There are some issues in the new Composition Scheme that can pose confusion in the minds of taxpayers. The questions given below will give a hint towards the issues in the new Composition Scheme.


#1. Whether the Composition Scheme is optional?

It has been mentioned nowhere that this in new Composition Scheme is optional.

  • However, in the notification, it was mentioned at 2 places that a person who “opts for paying tax @ 6%”. This hinted that the scheme might be optional.
  • The Notification has been issued with reference to section 9(1) & 11(1) of the CGST Act 2017, according to which there is no option given by the government. If it had been notified under provisions of section 10, then it would have suggested that the scheme is optional.
  • It has been clearly notified that this composition scheme will be applicable to those who are not eligible for composition scheme u/s 10(1) of the CGST Act. this indicates that the new composition scheme is not optional.
  • Hence, we see that it is still not clear whether this scheme is optional.


#2. Whether supply is interstate or not?

This will be determined as per sections 10, 11, 12 & 13 of IGST Act 2017.

  • Any sort of misinterpretation as regards the place of supply can land the taxpayer in trouble. It may result in huge unwanted GST liability including interest and penalty amount.
  • For instance, if it is found later on that one transaction is interstate, then that shall attract IGST liability regardless of the turnover of the taxpayer.


#3. How shall threshold be determined for the new Composition Scheme?

The notification clearly indicates that the eligibility for GST registration under new Composition Scheme has to be ascertained from the turnover of the preceding year from 1st of April.

  • Here, it also includes the period when a person was not liable for GST registration under this scheme.
  • However, for determining the GST payable as per the notification, the term- 'first supply of goods or services or both' shall not include the supplies made from 1st April of the financial year to the date from which he became liable for GST registration under this scheme.


#4. How shall GST apply on the Composition taxpayer?

Notification suggests that a new taxpayer shall be exempt from GST till ₹20 lacs turnover and if his turnover crosses ₹50 lacs, the GST rate of 6% shall apply.

As per this notification, he will be liable to GST@6% even on exempt supplies. This notification is issued u/s 9 of CGST Act which empowers the government to levy GST and u/s 11 of the said Act, is for granting exemption which has a contradictory implication. It will be illegal to charge GST on exempt supplies u/s 9.


#5. Why there’s no mention of ITC reversal on capital goods in stock?

Notably, there is no mention of any reversal of Input Credit on the goods in stock or capital goods in stock.

  • Suppose, a service provider has availed Input Credit of his capital goods in the previous year and has utilised it to discharge his GST liability.
  • Now, as per this scheme, Input Credit shall not be available. Accordingly, the Input Credit should have been reversed or lapsed, but nothing has been mentioned in the notification in this regard.


#6. What can be the solution to the above queries?

No doubt, the new Composition Scheme shall be brought as per the GST Council's decision, yet it has some errors. This makes it not feasible for small taxpayers. Moreover, the notification has not clearly mentioned where this scheme is optional. The issues that have been discussed above need to be thoroughly examined and addressed before this new Composition scheme is made effective.

If you need any sort of assistance regarding GST registration, or GST return filing procedure, feel free to contact our business advisor at 8881-069-069.

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