Composition Scheme Under GST
What is the Composition Scheme for GST?
The GST council has implemented a composition system to minimise expenses for small taxpayers and streamline the compliance procedure. As a result of the advent of the composition scheme under GST in the field of taxation, small enterprises are relieved of a load of compliance provisions. As the GST composition scheme ensures improved compliance, there is a minimal requirement to keep records. Any taxpayer with a taxable income under Rs. 1.5 crore can take advantage of this scheme.
Who is eligible to use the Composition Scheme?
The composition scheme under GST is available to taxpayers with a turnover below Rs. 1.5 crore. The GST composition scheme limit has been raised to Rs. 75 lakh for the North-Eastern and Himachal Pradesh states.
A composite tax is applicable for a dealer with a turnover up to 10% or Rs. 5 lakhs under the CGST (Amendment) Act, 2018. This amendment was effective on February 1, 2019. This limit is considered to be increased by the GST Council during its 32nd meeting on January 10th, 2019. To determine turnover, all businesses registered under the same PAN should be included.
Who is not eligible to choose the Composition Scheme option?
The following registered user does not have access to the composition scheme in GST:
- Been involved in the production of commodities that, according to this Act, are exempt from taxation;
- Providing interstate shipments of the goods.
- Involved in supplying goods using an operator of an electronic commerce platform who is authorised to collect tax at the source under Section 52.
- Government-notified manufacturer (Example: Ice cream, Pan Masala, Tobacco).
What are the eligibility requirements for the Composition Scheme under GST?
Under GST, you can choose the composition scheme if you meet the following conditions:
- Composition scheme dealers can’t claim input tax credits.
- For transactions governed by the RCM, the taxpayer would pay the tax at the standard rates applicable to the goods and services tax.
- There should be no interstate supply of goods.
- The dealer should not give goods exempt from GST under any circumstance.
- If a taxpayer is engaged in multiple business segments, such as grocery, textiles, etc., under the same PAN, they must either select collectively for the composition scheme or opt-out of it.
- It is the responsibility of the taxpayer to specify “composition taxable person” on each supply invoice issued from his end.
- Taxpayers must include “composition taxable person” on all signboards and a notice at the business location.
- A trader or a manufacturer can provide services up to ten per cent of their total turnover or five lakhs of rupees, whichever is higher. This scheme became available on February 1st, 2019.
How should a bill be calculated for a composition dealer?
When a registered person supplies exempted items, they must issue a Bill of Supply. Composition dealers can’t issue tax invoices. This is because a composition dealer cannot charge tax to the people they serve. They must pay taxes from their funds. Consequently, the dealer must submit a Bill of Supply. At the top of the Bill of Supply, the dealer must also include the phrase “composition taxable person, not authorised to collect tax on supplies.”
What are the composition dealer’s GST rates?
The following is a list of the GST rates that are applicable under the Composition Scheme:
|Particulars||% of the GST|
|Manufacturers and traders||1% of turnover|
|Restaurants not serving alcohol||5% of turnover|
|Other service providers||6% of turnover|
How should a dealer in composition pay the GST?
Payment of GST must be made out of hand for all supplies. A composition dealer’s GST payment includes the following:
- GST on goods and services supplied.
- Reverse charge tax
- Tax on acquisitions from unregistered dealers
What kinds of returns are required to submit by a dealer in compositions?
Under the GST composition scheme, the following GST returns need to be filed:
- CMP-08: Quarterly statement due by 18th of the following month.
- GSTR-4: From the 2019-20 financial year onward, taxpayers must submit an annual GST return by the 30th day of April of the following year.
- GSTR-9A: Annual GST Returns are due by December 31 of the following financial year.
What advantages does Composition Scheme have?
There are several advantages to using the composition scheme under GST, including:
- Less compliance, including lesser returns, keeping books of record, and issuing invoices.
- A limited tax liability.
- Greater liquidity as a result of lower tax rates.
What are some of the disadvantages associated with the Composition Scheme?
- A limited business territory. Inter-state transactions are prohibited for the dealer.
- There is no accessible Input Tax Credit for composition dealers. As a result, the businessman will be responsible for paying the GST.
- The taxpayer is ineligible to provide exempt items or goods via an e-commerce platform.
Regular Scheme VS Composition Scheme under GST
How may a taxpayer choose to participate in a composition scheme?
To elect the composition system, a taxpayer must submit Form GST CMP-02 to the government. This can be completed online via the GST Portal. This notice should be given by a dealer who wants to use the composition scheme in GST at the commencing of every Financial Year.
How simple and clear is it to complete composite GST returns?
Perform the following procedures on the GST portal to select the Composition Levy:
- Go to the Taxpayers' Interface and sign in.
- Navigate to Services > Registration > composite Composition Levy Application
- Fill out the form as per its instructions and submit it.
Are Composition Dealers Eligible to Claim Input Tax Credits?
No, the Composition Dealer is not eligible to receive GST input tax credit on purchases.
Is it possible for a Composition Dealer to issue Tax Invoices?
A Composition Dealer must issue a Bill of Supply. They are not allowed to issue tax invoices. This is because the tax must be paid out of pocket by the dealer. The GST cannot be recovered from customers by a composition dealer.
How do I convert a regular GST scheme to a composition scheme?
Any taxpayer who is registered as a regular taxpayer under GST must submit applications to qualify for Composition Levy in Form GST-CMP-02 to the GST Portal before starting the financial year for which the previous section is exercised.
How do I proceed if I am enrolled as a registered taxpayer?
The following steps are taken on the GST portal to qualify for the composition levy:
To use the Taxpayers’ Interface,
- You must first log in.
- Navigate to Services > Registration > Composition Levy Application
- Complete the form according to the rules specified in the form description and submits.
Is it possible to save the Application to Opt-Out of the Composition Levy?
Yes, the submission Application can be kept up to 15 days from the initiation date after the system purges it.
My Saved Applications is a feature of the Taxpayers’ Interface that allows you to access your saved applications.
Can I opt for the Composition Levy if I’ve worked in the service industry?
Yes, from FY 2019-20 onwards, you will opt to pay the Composition Levy, even if your business is engaged in services.
Is it possible for a dealer working in interstate supplies to choose the Composition Scheme under GST?
Only dealers who do intra-state supplies are liable for the Composition Scheme under GST. If a dealer works in interstate supplies, he or she must opt-out of the scheme.