Composition Scheme under GST

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    GST Composition Scheme

    The composition scheme is a unique provision under the GST system that is designed to ease the GST procedures for taxpayers whose turnover is below Rs. 1.5 crores. Such taxpayers must pay GST at a fixed rate, which makes it highly beneficial for small businesses. Additionally, the GST search tool makes checking whether a particular entity has opted for the scheme easier.

    What are the Features of the Composition Scheme?

    • Applicable to Small Taxpayers: The composition scheme is applicable to small taxpayers with an annual turnover of Rs. 1.5 crore.
    • Flat Tax Rate: Taxpayers must pay tax at a fixed percentage of their turnover. The tax rates are lower than the regular tax rates for most businesses.
    • Quarterly Returns: Taxpayers must file quarterly returns instead of monthly returns.
    • Limited Input Tax Credit: Taxpayers are ineligible for input tax credit on their purchases.
    • No Tax Collection: Taxpayers cannot collect tax from their customers.
    • Limited Business Activities: Taxpayers cannot engage in certain business activities, such as inter-state supply, export of goods, and e-commerce transactions.
    • Simple Registration Process: The registration process is simple and can be done online.
    • Annual Return: Taxpayers under the Composition Scheme must file an annual return instead of the regular one.

    Benefits of the Composition Scheme

    Below are the benefits of the composition scheme:

    • Reduced Compliance Burden: Small taxpayers often face difficulties complying with complex tax rules and regulations. It reduces their compliance burden as they are required to file only quarterly returns and pay a fixed percentage of their turnover as tax.
    • Lower Tax Liability: It allows small taxpayers to pay taxes lower than regular taxpayers. This helps them to save on their tax liability and improve cash flow.
    • Improved Cash Flow: The Composition Scheme helps small taxpayers improve their cash flow as they must pay tax only on their turnover, not profit.
    • Easy Registration Process: The registration process is simple and hassle-free. Small taxpayers can register online and start availing the benefits of the scheme.
    • Increased Competitiveness: The Composition Scheme helps small taxpayers compete with larger businesses, reducing their tax liability and compliance burden. This allows them to invest more in their business and grow.

    GST Rates for Composition Scheme Dealer

    The following table explains the tax rate on turnover applicable for composition dealers.

    Type Of Business CGST SGST Total
    Manufacturers and Traders (Goods) 0.5% 0.5% 1.0%
    Restaurants Not Serving Alcohol 2.5% 2.5% 5.0%
    Other Service Provides 3.0% 3.0% 6.0%

    What is the Limit for the Composition Scheme?

    The limit for the GST Composition Scheme is not fixed and varies depending on the sector of the taxpayer. Service providers’ turnover limit for availing of the Composition Scheme is Rs. 50 lakhs for a financial year.

    The limit for the composition scheme is not fixed and varies depending on the sector of the taxpayer.

    The service provider’s turnover limit is Rs. 50 lakhs for a financial year, while for manufacturers, traders, and restaurants not serving alcohol is Rs. 1.5 crores for any financial year if the taxpayer is newly registered. However, the limit for existing registered entities is set at Rs. 1.5 crores for the previous fiscal year.

    It is important to note that if the turnover of a taxpayer exceeds the limits stipulated above, they will have to shift to the regular GST scheme and will no longer be eligible for the benefits of the Composition Scheme. Therefore, taxpayers must carefully evaluate their eligibility and turnover before opting for the Composition Scheme.

    What Invoices Can Composition Scheme Dealers Issue?

    Below are the invoices to be issued by the composition dealer under GST:

    • A dealer under the composition scheme cannot have CGST and SGST on the bill and cannot issue tax invoices.
    • The dealer has to give a bill of supplies in GST
    • Tax is not to be shown separately in the bill
    • In the invoice, it is essential to mention that a Composition taxable person is not eligible to collect tax on supplies.

    Documents a Composition Dealer Issues While Making Supply

    Under the Composition Scheme, dealers are not allowed to collect taxes from their clients. This means they cannot produce tax invoices and must pay taxes out of their pockets. Instead of a tax invoice, the dealer must issue a bill of supplies. At the top of the bill of supplies, the dealer must state, “Composition Taxable Person, not eligible to collect tax on supplies.” This ensures that the clients are aware that the dealer is not collecting tax from them and that the dealer is paying taxes themselves under the Composition Scheme.

    Who Can and Cannot Opt For the GST Composition Scheme?

    The following can opt for the composition scheme:

    • Small Businesses: The GST Composition Scheme is primarily meant for small businesses with an annual turnover of up to Rs. 1.5 crores.
    • Manufacturers, Traders, and Restaurants: Manufacturers, traders, and restaurants not serving alcohol can opt for the Composition Scheme. However, restaurants serving alcohol are not eligible for the scheme.
    • Service Providers: Service providers with an annual turnover of up to Rs. 50 lakhs can opt for the Composition Scheme.
    • New Registrations: Newly registered entities can opt for the Composition Scheme if they meet the eligibility criteria.

    The following people cannot opt for the composition scheme:

    • Manufacturers of ice cream, pan masala, and tobacco
    • Person Making Inter-state supplies
    • A casual taxable person o non-resident taxable person
    • A business that supplies goods through an e-commerce operator

    How Can Taxpayers Opt For a Composition Scheme?

    Taxpayers who opt for the Composition Scheme must submit Form GST-CMP-02 to the government. This can be done online by logging into the GST portal. Additionally, a dealer who wants to use the Composition Scheme must notify the government at the beginning of each fiscal year. This ensures that the government is aware of the dealer’s intention to use the Composition Scheme and can accordingly provide the necessary guidelines and compliance requirements.

    How To Calculate Aggregate Turnover For The Composition Scheme?

    The total turnover must be calculated across India or for a single person using the same permanent account number (PAN). It will be the sum of all outward supplies falling into the following categories:

    • Taxable Supplies
    • Exempt Supplies
    • Exports of Goods or Services or Both
    • Inter-State Supplies

    It excludes taxes (including Cess) paid in accordance with GST Law as well as the value of inward supplies for which tax is due on a reverse charge basis.

    New GST Composition Scheme

    The new composition scheme was recommended at the 32nd GST Council meeting for services and mixed supplies suppliers. This new composition scheme was applicable from 1st April 2019. Below are the amendments to the GST composition scheme:

    • The threshold for GST registration would be kept at Rs. 50 Lakh
    • The GST rate must be 6% without the availability of input credit.
    • Furthermore, the taxpayers having GST registration under this scheme would require only an annual GST return filing procedure in FORM GSTR-9A. They would not have to file quarterly returns GSTR-4.

    Conclusion

    The GST Composition Scheme aims to provide greater compliance to small taxpayers without requiring extensive documentation. This scheme simplifies compliance requirements and reduces expenses for small businesses. It eliminates the need for complex paperwork and compliance procedures. Tax liability is also lower for businesses under the scheme, with fixed tax rates ranging from 1% to 6% of the turnover. Overall, the Composition Scheme is a great option for small business owners who want to simplify their tax obligations and reduce their compliance burden.

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