Composition scheme is a simple scheme under GST. It’s a getaway for small business from tedious GST formalities. It is an alternative method of levying tax. It’s an optional scheme implying to pay tax at a prescribed rate of turnover. The basic objective of the scheme is to reduce compliance and bring simplicity for small taxpayers.
Eligibility to become composition dealer.
Small traders, manufacturers and service providers can avail the composition scheme. The threshold limit for Trader and Manufacturer is 1.5 crore. For restaurants services also limit is 1.5 crore (earlier it was 1 crore) and for Special category states (North Eastern States and Himachal Pradesh) the limit goes down to 75 Lakhs. Also, from 1st April, 2019 service providers and those dealing in goods and service both the limit applicable is 50 Lakhs. The limit of turnover is to be based on turnover of all the businesses which are registered with the same PAN, and thus all the businesses under same PAN can be all composition dealers or regular taxpayers.
Who are not eligible to opt for the Composition Scheme?
Following taxable persons are not eligible to opt for the scheme.
- Taxpayer who is making inter-state supplies.
- Taxpayer manufacturing ice cream, pan masala or tobacco. Casual Taxable person or Non-resident taxable person.
- E-commerce operator.
What conditions are to be complied with as per Composition scheme?
- Input Tax Credit cannot be claimed.
- No exempted goods can be supplied.
- As per rules, tax in reverse charge transaction is to be paid at normal rates.
- If a taxable person has different segments of businesses (such as textile, electronic accessories, groceries, etc.) under the same PAN, they must register all businesses under the scheme collectively or opt out.
- The words ‘composition taxable person’ has to displayed on every notice or signboard at their place of business.
- The taxpayer to mention the words ‘composition taxable person’ on every bill of supply issued by him.
- A manufacturer or trader can now also supply services to an extent of ten percent of turnover, or Rs.5 lakhs, whichever is higher. The applicability of amendment is from1st of Feb, 2019.
Billing under Composition Scheme.
According to GST composition scheme rules, a composition dealer cannot issue a Tax invoice, because he can neither charge tax, nor claim input tax credit. Tax is to be paid of the pocket. Thus, a composition dealer needs to issue a Bill of Supply, and the words ‘composition taxable person’ should be clearly mentioned on it.
Rates under GST Composition scheme.
- For Trader, Manufacturer –1% (5% CGST plus 0.5% SGST)
- For Restaurant Service – 5% (2.5% CGST plus 2.5% SGST)
- For Other Service Providers whose turnover in the preceding Financial Year Rs. 50 lakhs – 6% (3% CGST & 3% SGST)
Yes. Tax will have to be paid on supplies received from unregistered persons by the composition dealer under reverse charge at normal rates.
No, a composition dealer is not required to maintain detailed records.
No, composition dealer can not avail Input Tax Credit.
A composition dealer has to issue Bill of Supply with words mentioned on it as “Composition Taxable Person”. They cannot issue tax invoice.
When taxpayer switches from normal scheme to composition scheme, the taxpayer will be liable to pay an amount equal to the credit of input tax in respect of inputs held in stock on the day immediately preceding the date of such switchover. The balance of input tax credit after payment of such amount, if any lying in the credit ledger shall lapse.
Yes, this is possible. A taxpayer can opt to switch between the Composition Scheme and the normal scheme based on turnover. However, this will affect the way you issue invoices, ITC and returns.
If Composition Scheme is opted for all businesses that are associated with this PAN
No. Before the beginning of every financial year, a registered taxpayer is required to provide a declaration on the GST Portal. This cannot be done anytime during the year.
Aggregate turnover will be computed on the basis of turnover on an all India basis and will include value of all taxable supplies, exempt supplies and exports made by all persons with same PAN, but would exclude inward supplies under reverse charge as well as central, State/Union Territory and Integrated taxes and cess.
Yes. The registered person who intends to withdraw from the composition scheme can file a duly signed or verified application in FORM GST CMP-04. Every person who has filed an application for withdrawal from the composition scheme, may electronically furnish, a statement in FORM GST ITC-01 containing details of the stock of inputs and inputs contained in semi-finished or finished goods held in stock by him on the date of withdrawal, within a period of thirty days of withdrawal.
What are the returns to be filed by Composition Dealer?
From April 2019 three returns are to be filed by composition dealer. CMP-08- It replaces earstwhile quarterly
- GSTR-4. It’s a statement and challan to declare self assessed tax liability for a given quarter. The due date for the the return is 18th of the month succeeding the quarter.
- GSTR-4- GSTR-4 has been revamped and now it will be required to filed by 30th April annualy.
- GSTR-9A- GSTR 9A is the annual return to be filed once in a year for all composition dealer, as now GSTR 4 has been required to be filed annually one of them can be averted.
What are the advantages of composition scheme?
Following are the advantages of opting composition scheme.
- Less compliances.
- Limited tax liability.
- High cash liquidity as taxes are of lower rate.
What are the disadvantages of composition scheme?
Following are the disadvantages of opting composition scheme.
- Limited scope of business as the dealer is not allowed to supply inter-state.
- No credit can be availed.
- Taxes cannot be collected and hence to paid out of pocket.
- Not eligible for e-commerce business.