What is the Composition scheme in GST?
The GST Composition Scheme provides a simplified approach for small taxpayers to navigate GST formalities.
It enables them to pay GST at a fixed rate based on their turnover. Any taxpayer with a turnover of less than Rs. 1.5 crore can opt for this scheme.
Eligibility for opting for the Composition scheme:
Taxpayers can choose the Composition Scheme if their annual turnover is within the specified limit.
The current turnover limit is Rs. 75 Lakhs for North Eastern states and Rs. 1.5 Crores for others.
However, taxpayers cannot opt for the Composition Levy if they are/ make:
- Any supply of goods which are not liable to be taxed under this Act
- Inter-state outward supplies of goods
- Supplies through electronic commerce operators who are required to collect tax
- A manufacturer of notified goods (Notified goods as of today are ice cream, tobacco, and pan masala)
- A casual dealer
- A Non-Resident Foreign Taxpayer
- A person registered as an Input Service Distributor (ISD)
- A person registered as a TDS Deductor /Tax Collector
Important points in the Composition scheme:
- No Input Tax Credit for Composition Dealers:
Claiming Input Tax Credit is off the table for composition dealers. They are required to pay the entire tax without the option to offset it against their input liabilities.
- Limitations on Goods Supplied:
Composition dealers face restrictions on the types of goods they can supply. Goods not subject to GST, such as alcohol, cannot be part of their offerings.
- Reverse Charge Mechanism:
Composition dealers must navigate the Tax under the Reverse Charge Mechanism for specific goods and services as notified. This entails paying tax directly instead of the traditional method.
- Invoice Essentials:
When it comes to invoices, a composition dealer must adhere to certain guidelines. The invoice should prominently display “Bill of Supply” as its heading. Additionally, the value of goods should include GST, ensuring that the customer is not separately charged for GST.
- Input Tax Credit Limitations for Customers:
Customers purchasing from a composition dealer, as indicated in the Bill of Supply, cannot claim Input Tax Credit on the GST mentioned. This adds a layer of distinction in the tax dynamics for businesses opting for the Composition Scheme.
GST Rates under the Composition Scheme:
Particulars
GST Rate
Manufacturers and Traders (Goods) 1%
Restaurants not serving Alcohol 5%
Service Providers 6%
Manufacturers of bricks (including building bricks, bricks of fossil meals or similar siliceous earth, earthen or roofing tiles, and fly ash bricks and blocks ) 6%
Returns under the Composition scheme:
A composition dealer is required to pay tax quarterly using Form CMP-08 and file an annual return in Form GSTR-4.
How to apply for the composition scheme?
Following steps are to be taken:
- Visit www.gst.gov.in
- Log in to the Taxpayers’ Interface
- Go to Services > Registration > Application to Opt for Composition Levy (Form CMP-02)
- Fill the form as per the specified rules and submit.
When can one opt for a composition scheme?
- New Taxpayers: Any person who becomes liable to register under the GST Act, after the appointed day, must file his option to pay the composition amount in the Application for New Registration in Form GST REG-01.
- Existing Taxpayers: Any taxpayer who is registered as a normal taxpayer under GST needs to apply to opt for Composition Levy in Form GST-CMP-02 at GST Portal prior to the commencement of the financial year for which the option to pay tax under the aforesaid section is exercised.
What is Stock Intimation under the Composition Scheme?
Input tax credits can not be claimed in the composition scheme. Therefore, it is mandatory to intimate details of stock on the day preceding the date from which the taxpayer opts for the composition scheme.
The taxpayer must file Stock Intimation details within 30 days of the date Composition Levy is sought.
Conclusion
The composition scheme unburdens the small taxpayers from time-to-time compliances under GST.
However, some disadvantages like the limited territory of business, and non-availability of ITC make the taxpayers disheartened to opt for this scheme. However, this scheme is very beneficial for small taxpayers.
