Composition Scheme

[Lalitha Krishnamurthy]

Our client has exempt turnover of ₹ 30 lakhs in FY 2021-22 by way of rent from residential property and taxable turnover of ₹ 5 lakhs by way of management consultancy services.

As per our understanding he is required to take registration.

Would he be eligible for the composition Scheme and if so whether composition tax is to be paid on ,

 

[KASTURI SETHI]

As per Section 10(2)(b) of CGST Act, your client is not eligible for composition scheme.

[Shilpi Jain]

Section 10(2)(b) may not get attracted since renting of residential property is leivable to tax but exempt.

In case you opt for composition scheme in this case, you may become liable to pay GST on the exempt turnover also.

So you are eligible to opt but do a cost benefit analysis and then proceed.

[Lalitha Krishnamurthy]

Thank you Mr. Sethi and Ms. Jain for your advice.

Regards.

[KASTURI SETHI]

Not eligible for composition scheme. One has to go deep into the legal and literal meaning of both words 'leviability' and 'non-leviability' and scope of both words/terms. Exempt is one of the 'ways' or 'methods' for not collecting tax. Non-leviability includes exempt also. Both are not exclusive. In this scenario, that benefit or relaxation is not available.

[KASTURI SETHI]

Just for additional knowledge

To know the exact meaning and message of any word one must go through synonyms and antonyms of that word. Literal meaning of any word is the basis of that message. Dictionary meaning of any word cannot be ignored.

[Amit Agrawal]

In my humble view:

1. Your client is not eligible to opt for composition scheme u/s 10 (1) of the CGST Act, 2017 due to restrictions by clause (a) of sub-section (2) of Section 10.

2. Your client is eligible to opt for composition scheme u/s 10 (2A) of the CGST Act, 2017.

3. If option under above Para 2 is chosen, your client needs to taxes @ 6% (i.e. 3% +3%) against management Consultancy services of ₹ 5 Lac. However, this is subject to the presumption that this supply took place after exhausting limit of 20 Lac aggregate turnover from exempt supply by way by way of renting of residential property.

3A. If option under above Para 2 is chosen and in my personal view, your client need not pay taxes @ 6% (i.e. 3% +3%) against exempt turnover of ₹ 30 lakhs by way of renting of residential property.

All above are strictly my personal views and same should be construed as professional advice / suggestion.

[Amit Agrawal]

Correction in last line of above post...... Please read it as follows:

All above are strictly my personal views and same should not be construed as professional advice / suggestion.

[Michael Smith]

A service provider can opt for Composition scheme with effect from 1st day of April 2019, with turnover of up to Rs. 50 lakh in the previous financial year.

A Service providers who have opted for composition scheme are required to pay GST at the rate of 6%. Scheme

AI Summary

Composition scheme eligibility: exempt rental may preclude composition or permit composition tax only on taxable services, assess carefully.
Eligibility for the composition scheme is disputed: one view disqualifies a taxpayer whose rental receipts are exempt because exempt supplies are treated as non leviable under the disqualification provision, whereas another view treats the taxpayer as eligible under the service provider composition option introduced after 2019, permitting payment of composition tax at the composite rate on taxable consultancy services while ordinarily not taxing exempt rental, but advising a careful cost-benefit analysis due to potential risk to exempt receipts.