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Everything about GST Composition Scheme


February 21, 2020

GST Composition Scheme

What is GST Composition Scheme?

A composition scheme registered under GST was introduced for the small taxpayers, whose turnover is less than 1.5 crore, to reduce the hectic GST formalities; compliance cost and limit tax liability under the scheme. GST composition scheme is optional and the taxpayer is required to intimate the tax authorities in case he intends to be registered under the scheme.

Who is Eligible for GST Composition Scheme?

A taxpayer whose turnover is less than 1.5 crore could opt for the composition scheme registered under GST. But in some states like Northeastern states and Himachal Pradesh, the limit is 75 lakh at present. According to the CGST (Amendment) Act,2018, it could be possible for the composition dealer to supply services up to 10% of the turnover or 5 lakh, whichever is higher. So other than the mentioned cases composition scheme registered under GST turnover limit is 1.5 crore The amendment would be valid from 1st February 2019 onwards. It is to be noted that the turnover of business entities registered under the same PAN has to be considered while calculating the turnover. Suppose if the registered taxpayer has various businesses with the same PAN then, either he can register under the scheme or opt-out of it completely.

Who is Not Eligible for Composition Scheme?

The following taxpayers are not eligible for the GST composition scheme.

  • A supplier with a turnover of more than 1.5 crore / 75 lakhs as per the previous financial year.
  • Supplies goods that are not leviable under the GST act.
  • Supplies services except for restaurant services.
  • Taxpayer making interstate outward supplies, export/import.
  • A casual taxable or non-resident taxable person
  • Goods are supplied via an e-Commerce platform. Suppliers who make the supply of goods via an e-commerce platform is needed to collect tax at source under section 52
  • Manufacturer of ice cream, pan masala, or tobacco.( However, the trader of these items could avail of this scheme)
  • A supplier who purchased goods or services from an unregistered supplier and that unregistered supplier has not paid the GST on a reverse charge basis.

What are the Conditions for Availing GST Composition Scheme?

Some conditions are there to avail composition scheme registered under GST :

  • No Input Tax Credit (ITC) could be claimed by a dealer opting for a GST composition scheme.
  • It is not possible for the dealer registered under the GST composition scheme to supply goods that are not taxable under GST like alcohol.
  • Under Reverse Charge Mechanism, a taxpayer must pay tax at normal rates for transactions.
  • It is mandatory to register all businesses under the scheme either collectively or opt-out composition scheme registered under GST, in case all the different businesses are under the same PAN.
  • The taxpayer should mention’ composition taxable person’ on every noticeboard or signboard shown at their place of business.
  • The words ‘composition taxable person’ should be mentioned by the taxpayer on every bill of supply issued by him.
  • According to the CGST (Amendment) Act,2018, it could be possible for the composition dealer to supply services up to 10% of the turnover or 5 lakh, whichever is higher. The amendment would be valid from 1st February 2019 onwards.

How can a Taxpayer Choose GST Composition Scheme? 

For the composition scheme, a taxpayer has to file GST CMP-02 with the government. It could be done online via the GST portal. It is to be noted that the taxpayer has to intimate the tax authorities at the beginning of every financial year if he wishes to opt for the composition scheme.

What Documents should a Composition dealer issue while making a Supply?

Since a composition dealer cannot charge tax from his customers, he cannot issue a tax invoice. He has to pay tax out of his own wallet. So the dealer must issue a Bill of supply. It is to be mentioned by the dealer as a ‘composition taxable person, not eligible to collect tax on supplies’ at the top of the Bill of the supply.

What are the GST Rates for a GST Composition Dealer?

The following table shows the rate of tax on turnover applicable for composition dealers. There are various types of business such as Manufacturers & traders, restaurants that do not serve alcohol also the composition scheme for service providers.

As for a manufacturer or a restaurant service supplier. The tax would be payable at 1% and 5 % respectively applicable on the amount of turnover in the state.

Composition scheme: Applicable GST Rate 

Business Type

CGST

SGST

TOTAL

Manufacturer & Traders (goods)

0.5%

0.5%

1% of the turnover

Restaurants not serving Alcohol

2.5%

2.5%

5% of the turnover

Goods & Services (Composite supply)

0.5%

0.5%

1% of the turnover

Goods &Service (Mixed supplies)

3%

3%

6% of the turnover

 

How to Apply for GST Composition Scheme?

Taxpayers can apply for the GST Composition Scheme online through the GST website portal http://www.gst.gov.in/. The user has to then file GST CMP-02 as your acceptance for coming under the GST composition. The intimation should be provided by the dealer opting for the Composition Scheme at the beginning of every Financial Year.

How to make a GST payment by a Composition Dealer? 

A composition dealer has to make the GST payment out of his wallet for the supplies made. It consists of GST on supplies made, tax on reverse charge, tax on purchase from an unregistered dealer.

Tax on purchase from an unregistered dealer is only on the specific categories of goods and services as well as the specific class of registered person with effect from 1st Feb2019, but it has yet to be notified.

What are the Returns filing by a Composition Dealer?

After the end of the quarter, a composition dealer has to pay GST in a quarterly statement CMP-08 by the 18th of the month. Besides, a return in the GSTR-4 form must be filed every year by the 30th of the next financial year from FY 2019-20 onwards. GSTR-9A an Annual Return is filed by 31st December of the next financial year. It was suspended for FY 2017-18 & FY 2019-20. Moreover, a dealer registered under the GST composition scheme is not needed to keep detailed records

What Benefits do Composition Scheme Offer?

Some advantages are there if you register under the composition scheme registered under GST.:

  • Lesser compliance in terms of filing returns, keeping books of records, or issuing invoices.
  • Tax liability is limited as compared to regular taxpayers.
  • Liquidity is high as taxes are at a lower rate which results in lesser bearing on his working capital.

What are the Drawbacks of the Composition Scheme? 

Some disadvantages are there if you register under the composition scheme registered under GST.:

  • Limited territory for business transactions: A dealer registered under the Composition Scheme is restricted to carry out interstate outward transactions and import & export of goods and services.
  • Input tax credit (ITC) is not applicable for composite dealers: The credit of input tax on the purchases of inputs for the normal taxpayers would not be allowed.
  • No tax collection: Although the tax rate for a composite dealer is lower, the burden of such tax is on the taxpayer which may result in a higher cost of sales.
  • Penal provisions: If the composite dealer is found to be ineligible or the permission was granted incorrectly, he is supposed to pay differential tax along with the penalty as per the Model GST Law.
  • The taxpayer cannot supply non-taxable goods under GST like alcohol goods via an e-commerce portal.

How To Change from Normal Taxpayer to Composition Scheme Dealer?

Switching from normal GST Registration scheme to composition scheme, the taxpayer is supposed to pay an amount the same to the ITC in terms of inputs held in stock on the day immediately coming before the date of such switchover. The balance ITC after the payment of such amount would lapse if any remaining in the credit ledger would lapse.                                                                                             

How To change from Composite Scheme holder to Normal Taxpayer?

Switching from composition scheme under present tax regime to normal taxpayer under GST would invoke transition provision and would be allowed a credit of duties held in stocks as inputs or credit of VAT (Value-Added Tax) in terms of inputs and inputs in semifinished or finished goods on the supposed date subject to the following criteria.

  • Taxable supplies could be made by using such goods or inputs.
  • Not being a composite GST Registration holder.
  • Being eligible to take ITC.
  • The inputs were not like that credit was not acceptable as per the earlier law owing to being said in any schedule or otherwise.
  • Being in the custody of invoice or document showing the evidence of payment of duties as per earlier laws with respect to inputs held in stock and semifinished or finished goods.
  • Such invoices or documents were given a maximum of 12 months before the date.

 

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