Composition Scheme Under GST

Composition Scheme under GST:

The Composition Scheme under GST is considered one of the simple and easiest schemes for taxpayers. As per the aforesaid scheme, the small taxpayers will have the benefit of payment of GST at a fixed rate on the annual turnover with fewer formalities under GST.  Basically, the composition scheme can be applied to a taxpayer whose annual turnover is more than Rs. 1crore. However, CBIC has decided to increase the threshold limit to Rs. 1.5 crore. Thus, a taxpayer whose annual turnover is more than Rs. 1.5 crore can adopt the composition scheme under GST. It is to be noted that the threshold limit for Himachal Pradesh and North-Eastern states is Rs. 75 lakh. 

Who Can Opt for Composition Scheme:

A taxpayer who has an annual turnover of less than Rs. 1.5 crore in a financial year can opt for the Composition Scheme Under GST for Small Taxpayers.  As mentioned earlier, the threshold limit for Himachal Pradesh and North-Eastern states is Rs. 75 lakh. According to the Central Goods and Service Tax (Amendment) Act, 2018, a composition dealer can supply service to the extent of 10% of the annual turnover of Rs. 5, 00,000 whichever is higher.

The aforesaid amendment came into force on 1 February 2019.  Apart from that, at the GST 32nd meeting, a proposal to increase the limit for service providers was discussed. The turnover of the businesses having registration with the same PAN will be taken into account to calculate the actual total turnover.

Who Can Not Opt for Composition Scheme:-

The following taxpayers cannot opt for the composition scheme:-

✔ People or businesses engaged in the manufacture of tobacco, pan masala, or ice-cream
✔  Person engaged in inter-state supplies
✔  Casual Taxable Person or a Non-resident Taxable Person
✔  Businesses or persons who are engaged in the supply of goods through an e-commerce platform or operator

Conditions to avail of the Composition Scheme:-

The following are some of the conditions which must be fulfilled in order to avail of the composition scheme;

✔ Input Tax Credit cannot be claimed by a dealer who is opting for a composition scheme.
✔ Dealer cannot supply non-taxable goods under GST including alcohol.
✔  Under the reverse charge mechanism the taxpayer must pay at normal rates of taxes.
✔ In case a taxable person has different types of businesses including electronic accessories, textiles, automobiles, groceries,etc. under the same PAN, in that case, the taxpayer has to register all the aforesaid businesses under the composition scheme or can opt out of the said scheme.
✔ The taxpayer must mention the words ‘composition taxable person on each signboard displayed at the place of business prominently.
✔ Apart from that, the taxpayer must mention the words ‘composition taxable person on each invoice issued by him or her.
✔ According to the Central Goods and Service Tax (CGST) Amendment Act, 2018, a trader or manufacturer of goods can supply service to the extent of 10% of the annual turnover of Rs. 5, 00,000 whichever is higher. The aforesaid amendment came into force on 1 February 2019. 

How Can A Taxpayer Opt for a Composition Scheme?

A taxpayer must file GST CMP-02 to opt for the composition scheme under GST with the Government. The taxpayer can do so by logging into the GST portal. At the beginning of each financial year, this intimation must be provided by the dealer who wants to opt for a composition scheme. 

How Does A Composition Dealer Raise a Bill?

A tax invoice cannot be issued by a composition scheme under GST.  This is due to the fact that a composition dealer is not authorized to charge tax from the customers. Composition dealers are required to pay taxes from their own pockets. Thus, the dealer is required to issue a Bill of Supply.  It is also to be noted that the dealer also must mention “composition taxable person, not eligible to collect tax on supplies” on the Bill of Supply in bold letters.

Also, read; GST Registration : An Overview

GST Rates for a Composition Dealer:-

A table showing the GST rates for a composition dealer is provided below with an objective to understand the tax rate on turnover in the state;

✔ Types of Business Central Goods and Service Tax (CGST)  State Goods and Service Tax (SGST)
✔ Manufacturers and Traders (Goods) 0.5%  0.5%
✔ Non Alcohol serving Restaurants 2.5%  2.5%
✔ Service Providers 3% 3%

How Should GST Payment be Made by a Composition Dealer?

A composition dealer has to make a GST payment out of his own pocket for the supplies made by him. The GST payments made by a composition dealer consist of the below-mentioned aspects;

✔ Tax on Reverse Charge
✔ GST on the goods Supplied
✔  Tax on the purchase of goods from a dealer who is not registered under GST

Returns to be filed by a Composition Dealer:-

A composition dealer must pay taxes in each quarter statement in CMP-08 by the 18th of the month or after the quarter-end. Apart from that, a return in Form GSTR-4 must be filled annually by 30 April of the upcoming financial years from the financial year 2019-20 onwards.  It is however noted that for the financial year 2017-18 and 2019-20 it was waived off completely. It is also to be noted that a dealer registered under the composition scheme does not require maintaining records in detail.

What are the advantages of the Composition Scheme?

Some of the advantages of the Composition Scheme for dealers registered under the Composition Scheme under GST are mentioned below;

✔ Limited tax liability
✔ As taxes are at a lower rate, there will be high liquidity
✔ Compliances are lesser including the issuance of invoices, filing returns, and maintenance of books of records.

✔ What are the disadvantages of the Composition Scheme?
✔  Some of the disadvantages of the Composition Scheme for dealers registered under the Composition Scheme under GST are mentioned below;
✔   The business will have limited territory. The composition dealer is not allowed to carry on inter-state supplies and transactions
✔   Composition dealers cannot claim for Input Tax Credit.
✔    The composition scheme taxpayer is not allowed to supply non-taxable goods such as alcohol and through e-commerce operators under GST.

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