Index
- Introduction
- What is the Composition Scheme in GST?
- Who can opt for a GST composition scheme?
- Who can opt for a GST composition scheme?
- What are the conditions for availing GST Composition Scheme?]
- How to opt for a GST composition Scheme?
- How to raise a bill as a Composition Dealer?
- The GST rate for a composition dealer
- How to make GST payment as a composition dealer?
- Return File by a Composition Dealer
- Advantages of GST Composition Scheme
- GST Composition Scheme Limit
Introduction
Every individual working as tax administration aims to recover taxes timely, filing of returns, simplified generation, and maintaining documents like records, invoices, and the likes. However, these tasks are sometimes challenging for smaller businesses. Hence the introduction of a composition scheme was made to overcome these shortcomings. The GST composition scheme is under the respective State VAT Laws with conditions applied on eligibility for the composition scheme accordingly.
What is the Composition Scheme in GST?
The GST composition scheme is simple and easy for taxpayers. Small businesses can get rid of tedious GST formalities and pay the tax at a fixed rate of turnover.
Who can opt for a GST composition scheme?
Any taxpayer whose turnover is below one crore rupees can opt for the GST composition scheme. However, if you are from North-East states and Himachal Pradesh, the GST composition turn over the limit is now 70 lakh rupees.
According to the CGST (Amendment) Act, 2018, a dealer under the GST composition scheme can also supply services to the extent of 10% of turnover or five lakh rupees, whichever is higher. This amendment is applicable from the 01st February 2019. Furthermore, the authority would consider the turnover of all businesses registered with the same PAN for the calculation of turnover.
As per the notification of CBIC, they have increased the threshold limit from 1.0 crore to 1.5 crore rupees.
As per the 32nd, GST Council Meeting held on 10th January 2019; the government has set the threshold turnover for service providers as well. It means that Service Providers can opt for this scheme if they ate within the GST composition turn over limit; which is 50 lakh rupees.
Who cannot opt for a GST composition scheme?
The following cannot opt for the scheme as per the GST composition rules:
- Manufacturers of goods like ice cream, pan masala, or tobacco
- An individual that makes inter-state supplies
- The causal or non-resident taxable person
- Businesses that supply products via an e-commerce platform
What are the conditions for availing GST Composition Scheme?
These are the GST Composition Scheme Rules that one must follow to opt for the scheme:
- Dealer cannot claim Input Tax Credit while opting for GST composition scheme
- The individual cannot supply goods that are GST exempted
- One has to pay tax at reasonable rates for transactions under the Reverse Charge Mechanism
- A taxpayer involved in the different business segments under the same PAN needs to register all such businesses under the scheme or opt-out.
- One has to mention the word “Composition Taxable Person” on every notice and signboard at their place of business. It is along with every bill of supply issued by him.
How to opt for GST Composition Scheme?
A taxpayer has to file GST CMP-02 with the government to opt for this scheme. One can do it online by logging into the GST web portal.
A taxpayer should intimate this at the beginning of every financial year if wanting to opt for this scheme.
How to raise a bill as a Composition Dealer?
One cannot issue a tax invoice as a composition dealer. It is due to a composition dealer cannot charge tax from their customers. They need to pay the fee from their pocket.
He must mention “composition taxable person, not eligible to collect tax on supplies” at the top of his bill of supply.
The GST rate for a composition dealer
Here is the rate of tax on turnover applicable for composition dealers:
- Manufacturers and traders need to pay 0.5% CGST and SGST, means a total of 1% of GST tax
- Restaurants (not serving alcohol) need to pay 2.5% CGST and SGST, means a total of 5% GST tax
- Other service providers need to pay 3% CGST and SGST, means a total of 6% GST tax
As per the notification dated 01st January 2018, turnover in case of trader is under the definition of “Turnover of taxable supplies of goods.”
How to make GST payment as a composition dealer?
A composition dealer can make the GST payment by the following:
- Supplies made
- Reverse charge
- Purchase from unregistered dealer
Return File by a Composition Dealer
A dealer needs to file a quarterly return GSTR-4 by the 18th of the month after the end of the quarter. He also needs to submit an annual return GSTR-9A by 31st December of the next financial year. A dealer registered under composition scheme doesn’t need to maintain detailed records.
Advantages of GST Composition Scheme
Here are the advantages of registering under GST composition scheme:
- Less compliance
- Tax liability is limited
- Lower rate of tax hence high liquidity
GST Composition Scheme Limit
Below is the GST composition scheme limit:
- A limited business territory because the dealer cannot carryout inter-state transactions
- Non-availability for Input Tax Credit
- A taxpayer will not be eligible to supply exempt goods or goods via an e-commerce portal
