What is GST Composition Scheme?
GST Composition Scheme is a simple and easy formula for taxpayers that helps them to pay GST at a fixed rate of turnover rather than different rates. The taxpayers, whose turnover is less than Rs. 1.5 crore* can take benefits of this scheme.
GST Composition scheme was introduced by the government because of increasing number of GST returns and the monthly payment of tax. Under this scheme, the small taxpayers have to pay tax at a nominal rate and also have lesser compliance.
The people who fall into the following category, cannot take benefits of this scheme.
– Casual taxable person or a non-resident taxable person
– Manufacturer of ice cream, pan masala, or tobacco
– Businesses which supply goods through an e-commerce operator
– Supplier of services other than restaurant related services
Conditions for availing Composition Scheme
– No Input Tax Credit can be claimed by a dealer opting for composition scheme
– The taxpayer can only make intra-state supply, no inter-state supply of goods.
– The dealer cannot supply GST exempted goods
– Taxpayer has to pay tax at normal rates for transactions under Reverse Charge Mechanism
– If a taxable person has different segments of businesses (such as textile, electronic accessories, groceries, etc.) under the same PAN, they must register all such businesses under the scheme collectively or opt out of the scheme.
– The taxpayer has to mention the words ‘composition taxable person’ on every notice or signboard displayed prominently at their place of business.
– The taxpayer has to mention the words ‘composition taxable person’ on every bill of supply issued by him.
How can a taxpayer opt for composition scheme?
– To opt-in for composition scheme, a taxpayer has to file Form GST CMP-01 or GST CMP-02 with the government. This can be done online after logging into the GST Portal.
– This intimation should be given at the beginning of every Financial Year by a dealer wanting to opt for Composition Scheme.
The documents to be issued by a composition dealer while making supply
– A composition dealer cannot issue tax invoice. This is because a composition dealer cannot charge tax from their customers. They need to pay the tax out of their own pocket.
– Hence, the dealer has to issue a Bill of Supply.
– The dealer should also mention “composition taxable person, not eligible to collect tax on supplies” at the top of the Bill of Supply.
The GST rates for a composition dealer
– Manufacture, CGST@1%, SGST@1%, Total GST@2%
– Traders(Goods), CGST@0.5%, SGST@0.5%, Total GST@1%
– Supplier of food or drinks for human consumption(without alcohol), CGST@2.5%, SGST@2.5%, Total GST@5%
– Service Providers, Cannot opt for Composition scheme
Way to pay GST for composition dealer
– The dealer opting for Composition cannot charge GST in their invoices to the consumer. The consumer/ the receiver of supplies will not be liable to pay GST to the supplier who has opted for Composition Scheme.
Returns to be filed by a composition dealer
– A dealer is required to file a quarterly return GSTR-4 by 18th of the month after the end of the quarter. Also, an annual return GSTR-9A has to be filed by 31st December of next financial year.
– Also, note that a dealer registered under composition scheme is not required to maintain detailed records.
Also read: Advantages and Disadvantages of GST
Advantages of Composition Scheme
– Lesser compliance (returns, maintaining books of record, issuance of invoices)
– Limited tax liability
– High liquidity as taxes are at a lower rate
Disadvantages of Composition Scheme
– A limited territory of business. The dealer is barred from carrying out inter-state transactions
– No Input Tax Credit available to composition dealers
– The taxpayer will not be eligible to supply goods through an e-commerce portal