Composition Scheme under GST
The Composition levy scheme is a very simple, hassle-free compliances cheme for small taxpayers. It is voluntary and can be availed at the option of the assessee. It is constructed mainly to ease the compliance burden of small and medium businesses in India. This scheme allows the taxpayers to pay tax at a fixed concessional rate without allowing any benefit of input tax credits paid.
What is GST Composition Scheme?
The GST Composition Scheme is a new scheme introduced by the GST Council on March 6, 2018. Under this scheme, small businesses with a turnover of up to Rs. 1.5 crorescan opt for an annual filing of the GSTR-3B form on a quarterly basis. They need not file the GSTR-1 and GSTR-2 forms which were earlier mandatory.
Advantages of Registering under GST Composition Scheme:
- Easy compliance as no accounts and records to be maintained.
- Simple Annual Return in form GSTR-4.
- Easy calculation of tax liability on the basis of pre-specified rates.
- Quarterly payment of tax.
- Not required to issue any taxable invoice under GST law.
- Lower tax rate.
- Nil returns can be filed through a simple SMS also.
Disadvantages of Registering under GST Composition Scheme:
- Restrictions on availment of input tax credits.
- Restrictions on inter-state sales resulting in narrowing of the scope of business operations.
- Restrictions on making sales through e-commerce channels which further results in less scope of business activities.
Who can avail the composition scheme in GST?
- Taxpayers whose turnover does not exceed .5 crores in a financial year.
- This turnover limit is ₹ 75 Lacs for special category states like Himachal Pradesh, Nagaland, Mizoram, etc.
- For a supplier of service, the turnover limit is ₹ 50 Lacs.
Who cannot avail the composition scheme?
- Taxpayer involved in Inter-state supplies of goods and services.
- Manufacturers and suppliers of notified goods i.e., pan masala, tobacco, ice cream, etc.
- Suppliers supplying the goods through e-commerce channels.
- A casual taxable person.
- A Non-resident taxable person.
- Person supplying goods and services on which GST is not applicable.
GST Rates Under Composition Scheme for:
- Manufacturers and traders – 1% (0.5% CGST and 0.5% SGST)
- Restaurants services – 5% (2.5% CGST and 2.5% SGST)
- Service Providers – 6% (3% CGST and 3% SGST)
Other Important Points:
- A taxable person opting for the scheme has to issue a bill of supply ashe is not eligible to issue a taxable invoice under GST. He has to mentionthe words “composition taxable person, not eligible to collect tax onsupplies” at the top of every bill of supply issued by him.
- A person opting for the composition levy scheme can continue to paytax under the said scheme as long as he satisfies the eligibility criteriaand conditions related to the scheme and do not require to file a freshapplication every year. But such a person shall be liable to pay taxunder sub-section (1) of section 9 of the CGST Act, 2017 from the dayhe ceases to satisfy any of the conditions and shall issue a tax invoicefor every taxable supply made thereafter and he shall also file anintimation for withdrawal from the scheme.
- Taxpayerregistered under composition scheme needs to pay tax on a quarterly basis before the 18th of the subsequent month of the quarter during which the supplies were made.
- A Composition Dealer has to file GSTR-4 on an annual basis, CMP-08 on a quarterly basis, and an annual return in form GSTR-9A.
- Any taxpayer wanting to opt for a composition scheme needs to file form CMP-02 after login in to the GST portal at the beginning of every financial year.