GST Composition Scheme is a simple and hassle-free compliance scheme for small taxpayers. The gst composition scheme law has been given under Section 10 of the CGST Act. It is voluntary and optional.
A taxpayer registered under a composition scheme has to pay a fixed percentage of his annual turnover as tax to the government. This scheme applies to taxpayers whose turnover is less than Rs 1.5 crore. The GST council increased the annual turnover limit to Rs 1.50 crores from the previous 1-crore bracket. The tax has to be paid quarterly every year.
Now, you need not have to maintain elaborate accounts and records. Instead of two monthly statements and a return, which you usually have to file under GST, now you have to file a simple quarterly return.
Is The Composition Scheme Applicable To You?
Are you a taxpayer whose turnover is below Rs 1.5 crore in a financial year? Then yes, you can opt for the composition scheme. In the particular case of North-Eastern states and Himachal Pradesh, the limit is Rs 50-75 lakh. Also, the exception of the turnover threshold for Jammu & Kashmir and Uttarakhand will be Rs 1 crore.
The GST composition limit includes the turnover of businesses registered under a permanent account number (PAN). If you have a single PAN but registered in more than one State under GST, you can opt for the scheme, provided you meet all the conditions of the scheme.
Small manufacturers, traders, and service providers can benefit from the composite scheme. Manufacturers other than those of pan masala, ice-cream, and tobacco products have to pay a 2% tax on annual turnover. The scheme includes taxpayers within the composition scheme in case 10% of annual turnover is provided as a service.
If you are a casual or non-resident taxable person, then the composition scheme does not apply to you.
Are Taxable People Excluded From The Composition Scheme?
Certain taxpayers are excluded from the composition scheme as follows:
- If you supply goods and services not leviable under the Act
- If you manufacture goods as may be notified
- If you make a supply of goods in Interstate/ Import-Export format
- If you make a supply of goods through E-Commerce and are liable to collect taxes
Are There Any Conditions To Avail The Scheme?
- No Input Tax Credit can be claimed.
- You have to pay tax at standard rates for transactions under the Reverse Charge Mechanism.
- You have to mention the words ‘composition taxable person’ on every notice or signboard displayed prominently at your place of business.
- You have to mention the words ‘composition taxable person’ on every bill of supply issued by you.
- You under the GST composition scheme will be required to show the bill of supply instead of the tax invoice to the tax authorities. Exemptions of up to Rs 5 lakhs for service providers are also available under the composition scheme.
Are There Any Composition Scheme Limits?
The scheme limits depend on the type of business and the turnover:
For Manufacturers And Traders
For newly registered businesses, your turnover should not exceed Rs 1.5 crore in the current financial year. If already registered, then your turnover must not exceed Rs 1.5 crore in the previous fiscal year. The same goes for the restaurants not serving alcohol.
For Service Providers
For newly registered businesses, your turnover should not exceed Rs 50 lakh in the current financial year. If already registered, then your turnover must not exceed Rs 50 lakh in the previous fiscal year. A manufacturer or trader can supply services to the extent of 10% of turnover or Rs 5 lakh, whichever is higher.
In Case Your Turnover Is High
If your turnover exceeds the specified composition scheme limit in a financial year, you will have to convert to the regular GST payment mechanism to comply with the GST composition scheme rules.
Rate Of Tax Under The Scheme
There are three rates prescribed for three different categories of suppliers.
- If you are eligible for goods manufacturer and trader, you have to pay 1% (0.5% CGST and 0.5% SGST/ UTGST) of turnover in a state or Union Territory.
- If you are an eligible restaurant owner (not serving alcohol), you have to pay 5% (2.5% CGST and 2.5% SGST/UTGST) of turnover in a state or Union Territory.
- If you are an eligible person service provider, you have to pay 1% (3% CGST and 3% SGST/UTGST) of turnover in a state or Union Territory.
How To Apply For The Scheme
The composition scheme has made the taxation filing procedure immensely simple and easy. Unlike before, where you needed to file returns 3–4 times in a month, now you will be required to submit or register tax returns only once in every quarter under the GST composition scheme. Tax returns need to be filed on or before 31st March of the previous financial year.
You can apply for the composition scheme online via the GST website. You need to file GST CMP-02 to serve intimation, indicating your readiness to come under GST composition. This intimation should be given at the beginning of every Financial Year to avail of the scheme.
You need to file GSTR 9A annually. GSTR 4 must be submitted by the 18th of the month, succeeding every quarter-end. You can get more information about the procedure of Composition form filling on the GSTN portal.
You can make GST payment online through the GST portal. If you are a taxpayer in Maharashtra, you can refer to mahagst payment for further details.
Advantages Of The Composition Scheme
- Reduced tax liability, as tax rates under the scheme lie in the range of 1%- 3%
- Increased liquidity for businesses and traders
- Reduced number of documents and procedures required to complete the process
- Decreased compliance as maintaining books of record, issuance of invoices not necessary
- Increased ease of doing business
Disadvantages Of The Composition Scheme
- Increased restrictions imposed on the registered person as a composition dealer
- Decreased territory for business as the ban imposed on Interstate supply
- You can not make a supply of exempted goods or services through an e-commerce portal, which is required to collect the tax. Neither will you be allowed to avail credit on your purchases.
- You are not allowed to recover composition tax from your buyers, as they are not allowed to raise a tax invoice.
The very purpose of the introduction of the GST composition scheme is proper tax submission to the government without having the trouble of additional compliance to small businesses. Timely recovery of taxes, tax liability reduction, and liquidity is possible through the composition scheme.