Composition Scheme Under GST

Composition Scheme under GST is for small businesses. The government introduced the scheme to relief small taxpayers and reduces the compliance burden.

Topics Covered –

What is Composition Scheme under GST?

Section 10 of the CGST Act, 2017 and Chapter 2 of the CGST Rules, 2017 deals with Composition Scheme under GST. It is a simple and easy scheme for GST registered dealers. It is voluntary and optional scheme. Under this scheme, a registered taxable person, whose aggregate turnover does not exceed Rs. 1.5 crore* can opt for Composition Scheme. Small taxpayers can get relief from GST formalities and pay GST at a fixed rate of turnover. The tax has to be paid on quarterly basis.

*CBIC has notified to increase the threshold limit from Rs. 1.0 Crore to Rs. 1.5 Crore.

Who can opt for Composition Scheme under GST?

Eligibility to opt for Composition Scheme under GST-

Any person whose turnover is below 1.5 crore.In case of North-Eastern states (except Assam) and Himachal Pradesh, the limit is now Rs. 75 lakh.
An Assessee shall have to mention ‘composition taxable person’ on every –
- signboardor notice displayed at their place of business.
- bill of supply issued

Dealer opting for composition scheme cannot claim Input Tax Credit (ITC)
Dealer cannot supply non taxable goods or services under GST
As per the CGST (Amendment) Act, 2018 a composition dealer can also supply services to an extent of 10% of turnover or 5 lakh. Whichever is higher.

Afterwards, GST council in its 32nd meeting proposed an increase in the limit for service providers on 10th Jan 2019. The threshold limit is increased for service suppliers by the government to Rs. 50 lakh.

Turnover of all businesses registered with the same PAN should taken into consideration to calculate turnover.

Who cannot opt for Composition Scheme under GST?

The following Assessee cannot opt for the composition scheme-

Manufacturer of Ice cream and other ice products, pan masala and tobacco.
A person making inter-state supplies
A casual taxable person or a non-resident taxable person.
Businesses supplying goods through an e-commerce operator.
Assessee who have purchased goods from unregistered dealer (Composition Scheme is allowed if GST paid on Reverse Charge basis).

How can an Assessee opt for the Composition Scheme?

To opt under the Scheme an Assessee has to file GST CMP-02. Prior intimation shall be given at the beginning of every Financial Year by a dealer opting for Composition Scheme.

For fresh registration under the scheme.

Intimation in FORM GST REG-01 must be filled.

For registered person switched to the Composition Scheme.

Intimation in FORM GST CMP-02 must be filled.
Later, a statement in FORM GST ITC-3 containing details of ITC relating to inputs lying in stock, inputs containing in semi-finished or finished goods is to be submitted to the GST portal within 60 days of commencement of the relevant financial year.

Click here to file GST CMP-02

Can Composition dealer issue Tax invoice?

A Composition dealer cannot issue Tax Invoice. This is because a Composition dealer cannot charge tax by their customers. They need to pay tax by their own.

Hence, the dealer have to issue a Bill of Supply.

The dealer also have to mention “Composition Taxable person, not eligible to collect tax on supplies” at the top of Bill of Supply.

What are the GST Rates applicable for Composition Scheme?

According to the section 10(1) of CGST Act and Rule 7 of CGST Rules, 2017, rate of tax applicable for Composition Scheme-

Nature of Business	CGST	SGST	Total
Manufacturer & Traders	0.5%	0.5%	1%
Restaurants (not serving alcohols)	2.5%	2.5%	5%
Service Providers	3%	3%	6%

The 32nd GST council meeting proposed for the inclusion of service provider under composition scheme.

What are the returns to be filed under Composition Scheme?

According to section 39(2), a registered person paying tax under composition scheme shall have to file a return, electronically, of turnover, inward supply of goods or services, tax payable or paid and such other particularsas may be prescribed.

Rule 62(1)(i)

The taxable persons paying tax for supply of services under Notification No. 2/2019-CT (Rate) dated 7-3-2019are required to file a quarterly statement in form GST CMP-08 within 18 days from the end of quarter. {amended with effect from 23-4-2019}

Click here to file GST CMP-08

Rule 62(1)(ii)

The taxable persons paying tax for supply of services under Notification No. 2/2019-CT (Rate) dated 7-3-2019 are required to file yearly return in form GSTR-4 within 30thApril relevant to the end of the financial year.

Click here to file GSTR-4

Note-

The persons paying tax under composition scheme for supplies of goods & services are required to file yearly return that is GSTR-4, but tax is payable by them every quarter.
Dealer registered under the scheme is not required to maintain detailed records.

How to withdraw from levy of Composition Scheme?

A registered person who is willing to withdraw from the scheme have to file an intimation in the form GST CMP-04, within 7 days of such withdrawal. After opting out from the scheme, tax invoice have to made for every supply and have to pay tax as normal tax payer. Afterwards a statement in FORM GST ITC-01 containing details of stock of the inputs and inputs contained in semi-finished or finished goods held in stock have to be submitted on the common portal within 30 days from the date of withdrawal.

What are the Advantages & Disadvantages of GST Composition Scheme?

Advantage

The following are the benefits of registering under composition scheme-

Less compliances (such as, no need to maintain books, returns, issue invoices etc).
Tax liability is limited
Liquidity is high as taxes rates are low

Disadvantage

The following are the disadvantages of registering under composition scheme-

Limited territory of business. As the dealer can only deal with intra state transactions.
No Input Tax Credit (ITC).
Not eligible to supply non taxable goods under GST such as alcohol and goods through an e-commerce portal.

In case of any Query related to GST Composition Scheme, then contact Manthan Experts for immediate relief.

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