Unraveling the Basics: Introduction to GST Composition Scheme
INTRODUCTION TO GST COMPOSITION SCHEME: A composition scheme or composition levy is a simple and hassle-free method of payment of GST on intrastate supplies of goods and services. a small taxpayer can get rid of tedious GST formalities and pay the GST at a fixed percentage of turnover. Any taxpayer can opt for this scheme whose turnover does not exceed Rs. 1.5 Crore.
WHO CAN OPT FOR THE COMPOSITION SCHEME?
A Taxpayer Whose Turnover Is Less Than RS. 1.5 Crore* Can Opt for Composition Scheme. In Case of Special Category States (North Eastern States) Like Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Himachal Pradesh the Turnover Limit Is Now RS. 75 Lakhs*.
As per the CGST (Amendment) Act, 2018, a composition dealer can also supply services to an extent of ten percent of turnover, or Rs.5 lakhs, whichever is higher. This amendment is applicable from the 1st of Feb, 2019.
If The Aggregate Turnover of a Taxpayer Making the Intra States Trade in Their States or Union territories Is with Above Mentioned Limit Then Such Taxpayer Is Eligible for the Composition Scheme.
As per the 32nd GST Council Meeting held On 10th Jan 2019, Service Providers can opt into the Composition Tax Scheme, and the Government has set the threshold turnover for service providers at Rs.50 lakhs to be eligible for this scheme.
NOTE: Turnover of all businesses registered with the same PAN should be taken for calculation of turnover.
WHO CANNOT OPT FOR COMPOSITION SCHEME?
The following are the types of taxpayers who cannot opt for the composition scheme:
- A person making inter-state supplies.
- A casual taxable person or a non-resident taxable person.
- An E-Commerce Operator.
- Manufacturer of ice cream, pan masala, or tobacco.
HOW CAN A TAXPAYER OPT FOR COMPOSITION SCHEME?
To opt for a composition scheme a taxpayer has to file GST CMP-02 online on the GST portal by logging into the GST Portal. This intimation should be given at the beginning of every Financial Year by a dealer wanting to opt for the Composition Scheme. For E.G. for FY 19-20 The Due Date for Filling, Form CMP-02 Is 31st March 2019.
CONDITIONS AND RESTRICTIONS FOR AVAILING COMPOSITION SCHEME
In order to get opt for a composition scheme, the following conditions must be satisfied
- A Composition Dealer Cannot Issue a Tax Invoice. This Is Because a Composition Dealer Cannot Charge Tax from Customers. They Need to Pay 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” On The Bill of Supply.
- No Input Tax Credit Can Be Claimed by a Dealer Opting for a Composition Scheme.
- The Dealer Cannot Supply GST Exempted Goods.
- The Taxpayer Has to Pay Tax at Normal Rates for Transactions Under the Reverse Charge Mechanism (RCM).
- 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.
- He Taxpayer Has to Mention the Words ‘Composition Taxable Person’ On Every Notice or Signboard Displayed Prominently at Their Place of Business.
- As Per The CGST (Amendment) Act, 2018, A Manufacturer or Trader Can Now Also Supply Services to an Extent of Ten Percent of Turnover, or Rs.5 Lakhs, whichever is higher. This Amendment is Applicable from The 1st Of Feb, 2019.
GST RATES FOR COMPOSITION SCHEME
RETURNS TO FILED BY COMPOSITION DEALER
Every Composition Dealer Is Required to Filed GTRR-4 And GSTR-9A Annually. The Due Date for GSTR4 is30th Day of April Following the End of the Financial Year and for GSTR9A Due Date Is the 31st of December of the Next Financial Year. But They Have to Pay GST Quarterly in Form GST CMP-08 The Due Date of GST CMP-08 Is the 18th Day of Month Succeeding Quarter. For Example, If The Quarter Ends On June 2019 The GST Under the Composition Scheme Is to Be Paid On or Before 18th July 2019.
In Composition Scheme, GST PAYMENT has to be made out of pocket for the supplies made by dealer. He has to pay taxes on
> Purchase at reverse charge mechanism (RCM)
>purchase from an unregistered dealer.
The option for composition levy shall remain valid so long as the taxpayer satisfies all the conditions mentioned above. the composition scheme will Elapse from the day on which his aggregate turnover during the financial year exceeds the specified limit and will have to face the following consequences such as:
>Required to pay normal tax
>He shall issue a tax invoice instead of a bill of supply
>Required to file an intimation for withdrawal from the scheme in the prescribed form within 7 days
Any person who was not eligible for a composite scheme but paid the GST under the GST composite scheme would be liable to pay normal tax from the day he stops to be eligible in addition he will be subject to penalty under (sec 73 & 74) of CGST ACT.
ADVANTAGES OF COMPOSITE SCHEME
>Small Taxpayer Can Get Rid of Tedious GST Formalities
>Helpful for Small Scale and New Start-Up
>Any Taxpayer Can Opt by Just Filling Prescribed Form CMP-02 On GST Portal
>Lesser Compliance (Returns, Maintaining Books of Record, Issuance of Invoices)
>High Liquidity as Taxes Are at A Lower Rate
>Limited Tax Liability
DISADVANTAGES OF COMPOSITION SCHEME
>The Dealer Is Barred from Carrying Out Inter-State Transactions.
>A Limited Territory of Business.
>No Input Tax Credit Available to Composition Dealers.
>The Taxpayer Cannot Issue a Tax Invoice.
>The Taxpayer Will Not Be Able to Purchase from Any Unregistered Person.
>The Taxpayer Will Not Be Eligible to Supply Exempt Goods.
>The Taxpayer Will Not Be Eligible to Supply Goods Through an E-Commerce Portal.
Note: “This document had been written to provide an update in simple/ lucid language. The Author shall not be responsible for any decision made based on the content of this document. Care has been taken to produce authentic and reliable information, however the users are expected to obtain professional advice before implementing.