Goods and Services Tax GST applies to all service providers, retailers, wholesalers, and producers who are doing business in India. The registration of any business organization under the GST Law is done under two categories which are as under:
- Normal scheme registration
- Composite Scheme registration
In this article we will take a look at eligibility, benefits, disadvantages as well as the compliances involved under the GST Composition Scheme.
What Is the GST Composition Scheme?
Composition Scheme is an optional scheme to pay GST at a lower rate than the normal rate. Small taxpayers who are burdened to comply with GST formalities can opt for composition scheme to reduce compliance and pay GST at a fixed rate on turnover.
Related read: Your Self-Help Guide For GST Registration
Eligibility Criteria For Opting Composition Scheme Under GST?
As per the GST Composition Scheme rules, eligibility depends upon:
The main condition to opt for the GST composition scheme is that the taxable person should have aggregate turnover in the preceding financial year not exceeding Rs.1.5 Crore. Further, a person who opts for GST composition scheme rate, may supply services, of value not exceeding ten per cent of turnover in the preceding financial year or five lakh rupees, whichever is higher.
- He is not engaged in the supply of services (apart from limit mentioned in main criteria above);
- He is not engaged in making any supply of goods which are not taxable under this Act;
- He is not making any inter-State outward supplies of goods or services;
- He is not supplying goods or services through an e-commerce operator who is required to collect tax at source under section 52of CGST Act 2017;
- He is not a manufacturer of ice cream, pan masala, or tobacco; and
- He is neither a casual taxable person nor a non-resident taxable person.
What Is The GST Rate Under Composition Scheme?
The rate of tax applicable for composition scheme is as under-
|S.No||Type of dealer||CGST||SGST|
|1||Manufacturers, other than manufacturers of such goods as may be notified by the Government (Ice cream, Pan Masala, Tobacco products etc.)||0.5%||0.5%|
|2||Restaurant services not supplying alcohol||2.5%||2.5%|
|3||Traders or any other supplier eligible for composition levy||3%||3%|
Related read: What Happens When GST Return Is Not Filed?
What are various Conditions to be fulfilled by composite Dealers?
There are various rules to be fulfilled once the dealer has opted for the GST composition scheme, namely:
- The dealer cannot claim ITC on inputs nor can he collect any taxes from the recipient of the supplies made by him.
- The dealer has to issue ‘Bill of Supply’ as it cannot issue Tax Invoice. Also, the dealer has to mention ‘Composition taxable person’ on top of every bill of supply issued by him.
- The dealer has to mention ‘Composition taxable person’ on every signboard in the premise of the business or notice issued.
- The dealer has to pay tax under Reverse Charge Mechanism at normal rate of tax.
- The dealer shall not be eligible to opt for the composition scheme if he is registered for more than one business having the same Permanent Account Number (PAN) [issued under the Income-tax Act, 1961 (43 of 1961)]. However, he can do so only if all such businesses opt to pay tax under composition scheme.
- The dealer cannot make Inter-state supplies but it can make Inter-state purchases.
Related read: What Are The GST Compliances In E-Commerce?
What are GST compliances in Composition Scheme?
In order to get a lower GST rate, eligible entities have to follow the following compliances under the Composition Scheme:
- The registered taxpayer will have to file FORM GST CMP-02, before commencement of the financial year, on the portal to opt for the composition scheme. Once opted, the taxpayer is by default considered under composition scheme for subsequent years to discharge his liability.
- Other than filing an application to opt for composition scheme, the taxpayer will have to file FORM CMP-03 (Stock Intimation) to declare details of the stock including those purchased from unregistered dealers for reversal of ITC.
- If the registered taxpayer in the subsequent year wants to withdraw from the scheme, he has to file FORM GST CMP-04. Post opting out the taxpayer will discharge his liability at normal rates and issue ‘Tax Invoice’.
- Other than filing an application to opt for composition scheme the taxpayer will have to file FORM CMP-03.
- The taxpayer under composition scheme will pay taxes and furnish the details for every quarter in the FORM GST CMP-08 by 18th of the subsequent month of the quarter.
- The taxpayer will file their return in the FORM GSTR-4 by 30th April of the subsequent financial year for which the return is filled.
There are several advantages of opting for GST composition scheme to small taxpayers such as
- The taxpayers do not have to maintain proper records which reduces a huge burden especially on small dealers and they can allocate more time for business development.
- Lesser GST liability as the dealer has to pay taxes at lower rates.
- Lesser tax payment also increases liquidity of funds at hand for small taxpayers.
- The taxpayer has lesser compliances to adhere to as liability is discharged quarterly by filing a simple form
While there are several pros for opting composition scheme, there are few cons too which are as under:
- The taxpayer cannot avail ITC.
- The dealer cannot widen the territory of business as he can’t make interstate sales.
- The dealer cannot supply through e-commerce portal.
How Can InCorp Help You?
At InCorp, our team has extensive expertise and experience that can assist you in complying with GST requirements and managing your taxes in a timely manner.
Our service scope includes:
- GST Compliances
- GST Operational Assistance
- GST Audit Services
- GST updates on recent notifications
- GST Representation and Litigation Support
- Other Indirect Taxes Advisory and Litigation