GST Schemes

The GST Composition Scheme is a simplified solution for small taxpayers. By opting for this scheme, taxpayers can avoid complex GST formalities and instead pay GST at a fixed rate based on their turnover. It is available to taxpayers with a turnover below Rs. 1.5 crore*. To check if a taxpayer has chosen this scheme, use the GST search tool and look for the “Taxpayer Type” column in the results. It will indicate if the taxpayer is a regular taxpayer or has opted for the GST composition scheme. *Note: The threshold limit has recently been increased from Rs. 1.0 crore to Rs. 1.5 crores by the CBIC.


Who Can Opt for the GST Composition Scheme?

Taxpayers with a turnover below Rs. 1.5 crore* have the option to choose the Composition Scheme. However, for the North-Eastern states and Himachal Pradesh, the limit is now set at Rs. 75 lakh*. An amendment to the CGST (Amendment) Act, 2018 allows composition dealers to provide services up to 10 percent of their turnover or Rs. 5 lakhs, whichever is higher. This amendment came into effect on February 1, 2019. Additionally, during the 32nd meeting of the GST Council on January 10, 2019*, a proposal was made to raise this limit for service providers. It is important to consider the turnover of all businesses registered under the same PAN when calculating the turnover.

*Please note that the Central Board of Indirect Taxes and Customs (CBIC) has recently notified an increase in the threshold limit from Rs. 1.0 crore to Rs. 1.5 crores.

Who Cannot Opt for the GST Composition Scheme?

The Composition Scheme is specifically not available for the following individuals or businesses:

  • Manufacturers of ice cream, pan masala, or tobacco products.
  • Those involved in making inter-state supplies.
  • Casual taxable persons or non-resident taxable persons.

Conditions for Availing GST Composition Scheme

To be eligible for the composition scheme, the following conditions must be fulfilled:

  • No Input Tax Credit: Dealers opting for the composition scheme are not allowed to claim Input Tax Credit.
  • Goods Taxable under GST: The dealer cannot supply goods that are not taxable under GST, such as alcohol.
  • Reverse Charge Mechanism: Transactions falling under the Reverse Charge Mechanism require the taxpayer to pay tax at the normal rates and not under the GST composition scheme.
  • Segments of Businesses: If a taxpayer has different business segments, all businesses registered under the same PAN must either collectively register under the GST composition scheme or opt out of the scheme.
  • Display of Information: The taxpayer must prominently display the words “composition taxable person” on every notice or signboard at their place of business.
  • Mention on Bills of Supply: The taxpayer must mention the words “composition taxable person” on every bill of supply issued.
  • Supply of Services: TAs per the CGST (Amendment) Act, 2018, manufacturers or traders can also supply services up to ten percent of their turnover or Rs. 5 lakhs, whichever is higher. This amendment came into effect on February 1, 2019.

How to Opt for the GST Composition Scheme?

In order to opt for the GST composition scheme, a taxpayer needs to file GST CMP-02 with the government. This can be conveniently done online by logging into the GST Portal. It is necessary for the dealer to provide this intimation at the commencement of each Financial Year if they wish to avail the benefits of the GST Composition Scheme. To assist you in the process, here is a detailed guide to the GST GST Composition Scheme.

How Can a Composition Dealer Raise a Bill?

As a composition dealer, it is important to note that you are not permitted to issue a tax invoice. This restriction exists because composition dealers are unable to charge tax from their customers. Instead, they are required to pay the tax out of their own funds. Therefore, as a composition dealer, you must issue a document called a “Bill of Supply” to your customers. On top of the Bill of Supply, it is crucial to include the statement “composition taxable person, not eligible to collect tax on supplies.” By adhering to this requirement, you can ensure compliance with the regulations governing composition dealers and accurately communicate your tax status to your customers.

Process for Making GST Payments as a Composition Dealer

The GST payment made by a composition dealer includes the following components:

  • GST on supplies made: This refers to the tax amount applicable on the goods or services supplied by the composition dealer to their customers.
  • Tax on reverse charge: In certain cases specified by the GST regulations, where the reverse charge mechanism is applicable, the composition dealer is required to pay the tax on such transactions.
  • Tax on purchase from an unregistered dealer*: For specified categories of goods and services, as well as the notified class of registered persons, a composition dealer may be liable to pay tax on purchases made from unregistered dealers.

However, please note that this provision is yet to be notified and is not applicable until then (as of the information cutoff date).

Returns to Be Filed by a Composition Dealer

Under the GST composition scheme, a dealer has specific tax payment and return filing obligations as follows:

  • Quarterly Tax Payment (CMP-08): The dealer must pay taxes on a quarterly basis by filing the CMP-08 statement. The payment is due by the 18th of the month following the end of the respective quarter. .
  • Annual Return (GSTR-4): From the financial year 2019-20 onwards, the dealer is required to file an annual return in the GSTR-4 form. This return should be filed by the 30th of April of the subsequent financial year, providing a summary of GST composition scheme-related transactions for the entire year.
  • Annual Return (GSTR-9A): The dealer is also obligated to file an annual return in the GSTR-9A form. This return should be filed by the 31st of December of the following financial year. However, it is important to note that the requirement to file GSTR-9A was waived off for FY 2017-18 and FY 2019-20.
  • Record Maintenance: Dealers registered under the GST composition scheme are not required to maintain detailed records. This relieves them from the burden of extensive record-keeping obligations.

Advantages of GST Composition Scheme

Registering under the composition scheme offers several advantages:

  • Reduced Compliance: One of the main benefits is a significant reduction in compliance requirements. This includes fewer returns to file, simplified maintenance of books of records, and no need to issue detailed invoices.
  • Limited Tax Liability: Composition scheme taxpayers enjoy limited tax liability. They pay tax at a lower rate based on their turnover, which helps in managing tax expenses effectively.
  • Improved Liquidity:The composition scheme contributes to higher liquidity for businesses. Since taxes are charged at a lower rate, the financial burden on the taxpayer is reduced, allowing for better cash flow and improved liquidity.

Disadvantages of GST Composition Scheme

Now, let’s explore the disadvantages of registering under the GST composition scheme:

  • Limited Business Territory: Dealers registered under the composition scheme face a constraint on their business territory. They are prohibited from conducting inter-state transactions, restricting their market reach to within a single state.
  • No Input Tax Credit: Composition dealers are not eligible to claim Input Tax Credit (ITC). This means they cannot offset the taxes paid on inputs or input services against their tax liability. As a result, they may experience increased costs compared to regular taxpayers.
  • Restrictions on Supplying Non-Taxable Goods: Composition dealers are restricted from supplying goods that are not taxable under GST, such as alcohol. Additionally, they are also prohibited from supplying goods through an e-commerce portal.

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