GST Composition Scheme

• Understanding the GST Composition Scheme: Imagine a special lane on the tax highway designed exclusively for small businesses. The GST Composition Scheme is just that – it’s a simplified way for eligible businesses to meet their tax obligations without getting lost in complexities.
• Benefits for Small Businesses: Think of it as a gift for the little guys. The Composition Scheme offers a handful of advantages. It reduces the administrative burden, lowers tax liabilities, and makes compliance smoother for businesses with limited resources.
• Eligibility Criteria: Not every business can enter this streamlined lane. To qualify, your aggregate turnover must be under a specific threshold. However, certain businesses like service providers, manufacturers of specific goods, and e-commerce operators are not allowed to join this simplified route.
• Special Tax Rates: Under the GST Composition Scheme, businesses enjoy lower tax rates compared to the regular GST rates. It’s like having access to discounted tax rates, a perk exclusively available to those who meet the eligibility criteria.
• Simplified Reporting: Imagine filing your taxes with fewer forms and less complexity. Businesses under the Composition Scheme file quarterly returns instead of the regular monthly ones. This streamlined reporting process reduces paperwork and makes compliance a breeze.
• Understanding the Limits: While it may sound like a tax paradise, there are limits to consider. Businesses opting for the GST Composition Scheme cannot collect GST from their customers. Additionally, they are not entitled to claim input tax credit on their purchases.
• Points to Remember: It’s important to note that businesses under the GST Composition Scheme cannot engage in inter-state transactions. Also, they cannot supply goods through e-commerce platforms. These restrictions ensure that the scheme is tailor-made for local businesses with simpler operations.
• Making the Right Choice: Choosing whether to embrace the GST Composition Scheme depends on various factors – your business’s turnover, nature, and goals. It’s like selecting the best route to reach your destination.

In essence, the GST Composition Scheme rules offer a smoother tax journey for small businesses. It brings benefits like reduced compliance, lower tax rates, and simplified reporting. However, it’s crucial to evaluate your eligibility, understand the limitations, and weigh the advantages against your business’s specific needs before embarking on this tax path.

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 GST 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 GST Composition Scheme, the following conditions must be fulfilled:

• No Input Tax Credit: Dealers opting for the GST 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.

Latest Updates on Composition Scheme

The Composition Scheme, introduced under the Goods and Services Tax (GST) regime, is a simplified tax scheme designed to benefit small businesses and reduce their compliance burden. It allows eligible businesses to pay a fixed percentage of their turnover as GST, simplifying their tax filing and reporting processes. This article provides an overview of the latest updates on the Composition Scheme and its implications for small businesses in India.

• Threshold Limit Enhancement: In a recent update, the threshold limit for availing the Composition Scheme was increased. Small businesses with an annual aggregate turnover of up to Rs. 1.5 crore (Rs. 75 lakhs for special category states) can now opt for this scheme. This expansion ensures that a larger number of small businesses can benefit from simplified tax procedures.
• Inter-State Supplies Inclusion: Previously, businesses registered under the Composition Scheme were not allowed to make inter-state supplies. However, the latest updates allow businesses to engage in inter-state supplies of services and goods while still availing the Composition Scheme benefits.
• Restaurant Services Eligibility: For businesses operating in the restaurant sector, the Composition Scheme was not applicable. However, the latest updates have extended the scheme’s coverage to include restaurants, making it more inclusive for various industries.
• Limitation on Input Tax Credit: Businesses availing the Composition Scheme are not eligible to claim input tax credit. This is an important consideration when deciding whether to opt for the scheme, as it could impact the overall cost structure.
• E-Commerce Operator Eligibility: In the latest updates, businesses that supply goods through an e-commerce operator can now avail the Composition Scheme, provided they meet the required criteria. This inclusion widens the scope of businesses that can benefit from this simplified taxation framework.
• Periodic Filing and Payment: Under the Composition Scheme, businesses are required to file quarterly returns (GSTR-4) and make payments at a fixed rate of turnover. This periodicity eases the compliance burden for small businesses, allowing them to focus on their operations.
• Limited Compliance Requirements: Businesses availing the Composition Scheme have limited compliance requirements compared to regular taxpayers. This includes fewer details to be provided on invoices and simplified returns filing.
• Challenges and Considerations: While the Composition Scheme offers advantages in terms of reduced compliance and ease of taxation, businesses need to carefully assess their eligibility and financial implications before opting for the scheme. Since input tax credit cannot be claimed, businesses should evaluate whether the benefits outweigh the limitations.

The latest updates on the Composition Scheme reflect the government’s efforts to simplify taxation for small businesses in India. By increasing the threshold limit, expanding eligibility to different sectors, and allowing inter-state supplies, the scheme aims to enhance ease of doing business and support the growth of small enterprises. Small businesses must evaluate their specific needs, operational structure, and financial goals to determine whether the Composition Scheme aligns with their requirements.

Composition Scheme Limit

The Composition Scheme, a special provision under the Goods and Services Tax (GST) regime, offers a simplified taxation solution for small businesses in India. It allows eligible businesses to pay a fixed percentage of their turnover as GST, reducing the compliance burden and paperwork associated with regular GST filing. Central to this scheme is the Composition Scheme Limit, which determines the threshold turnover below which businesses can avail of its benefits.

• Threshold Turnover Definition: The Composition Scheme Limit refers to the maximum annual aggregate turnover a business can have to be eligible for the Composition Scheme. This limit defines the boundary within which businesses can opt for the scheme and benefit from reduced compliance requirements.
• Recent Enhancement: Over time, the Composition Scheme Limit has been subject to updates to accommodate the evolving needs of small businesses. The recent enhancement of the limit has extended the scope of the Composition Scheme, allowing a larger number of businesses to avail its benefits.
• Current Composition Scheme Limit: As of the latest updates, the Composition Scheme Limit is set at Rs. 1.5 crore of annual aggregate turnover. Businesses with an annual turnover of up to Rs. 1.5 crore (Rs. 75 lakhs for special category states) are eligible to opt for the Composition Scheme.
• Eligibility Criteria: To avail the Composition Scheme, businesses must meet specific eligibility criteria, including the Composition Scheme Limit. It’s important for businesses to ensure that their annual aggregate turnover does not exceed the prescribed limit to take advantage of this simplified taxation option.
• Benefits and Considerations: The Composition Scheme offers several benefits, such as reduced compliance requirements, simplified returns filing, and a fixed tax rate. However, businesses opting for this scheme must also consider the limitations, such as the inability to claim input tax credit and restrictions on inter-state supplies.
• Exclusion of Certain Businesses: Certain businesses are not eligible for the Composition Scheme, regardless of their turnover. These include businesses engaged in supply of services, restaurants, manufacturers of tobacco and tobacco products, and more. Therefore, the Composition Scheme Limit is not applicable to these excluded sectors.
• Regular vs. Composition Scheme: For businesses nearing the Composition Scheme Limit, it’s important to evaluate whether it is more beneficial to opt for the Composition Scheme or continue as regular taxpayers. Factors such as input tax credit, market competition, and growth projections should be taken into account.
• Advisable Professional Consultation: Given the complexities and implications associated with choosing between the Composition Scheme and regular taxation, businesses are advised to seek professional guidance. Tax consultants and experts can help businesses make informed decisions based on their specific circumstances.

The Composition Scheme Limit plays a crucial role in determining the eligibility of small businesses for the simplified tax framework offered by GST. By understanding the limit, evaluating their operational needs, and considering the benefits and limitations of the Composition Scheme, businesses can make well-informed decisions that align with their growth objectives and compliance requirements.