GST Composition Scheme is a simple scheme under GST for taxpayers wherein the Small taxpayers can get free of tiresome GST formalities and pay the GST at a predetermined rate of turnover. Any taxpayer whose turnover is less than Rs. 1.5 crore can opt for the benefit under this GST Composition Scheme. CBIC has increased the threshold limit by notification from Rs 1.0 Crore to Rs. 1.5 Crores.
GST composition scheme is a relief mechanism for all small taxpayers having a turnover of Rs 1.5 crore. The small taxpayer also pays GST at a lower and fixed composition tax rate on their turnover. Today, in this article we will detail you about the GST Composition scheme.
What is GST Composition Scheme?
A GST composition scheme is a scheme for the small taxpayer whose turnover is below Rs 1 crore and in the case of North- Eastern States and Himachal Pradesh the limit is set for Rs 75 lakh. According to the CGST (Amendment) Act, 2018, services to an extent of 10 percent of turnover or Rs.5 lakhs can be supplied by a composition, whichever is higher. This amendment shall be enforced from 1st of Feb, 2019.
For calculating the turnover, all the businesses that are registered with the same PAN should be taken into consideration.
What are the conditions for availing Composition Scheme?
The given below are the following conditions that must be satisfied in order to opt for composition scheme:
- Any dealer opting for composition scheme shall not claim Input Tax Credit.
- The dealer shall not be able to supply goods that are not taxable under GST (For example: alcohol).
- For transactions under the Reverse Charge Mechanism the taxpayer shall have to pay tax at normal rates.
- For different varieties of businesses like textile, groceries, electronic accessories, etc. the taxable person under the same PAN, must register all the businesses collectively under the composition scheme or opt out from the scheme.
- It is mandatory for the taxpayer to mention the expression ‘composition taxable person’ prominently displayed at every signboard or notice at their business place.
- It is mandatory for the taxpayer to mention the expression ‘composition taxable person’ on issuance of every bill of supply by him.
- In accordance with the CGST (Amendment) Act, 2018, a trader or a manufacturer can now supply services to an extent of ten percent of turnover or Rs.5 lakhs whichever is higher.
Who cannot opt for Composition Scheme?
The following are the list of people who cannot opt for the scheme-
- Ice cream, tobacco or pan masala manufacturer
- A non-resident or a casual taxable person
- Businesses where goods are supplied through an operator of e-commerce.
- All inter-state supplies making person.
- A taxpayer who occasionally undertakes the supplies in a State or Union Territory having no fixed place of business.
- Non- resident taxable person who occasionally takes supplies but has no fixed place of business.
- Supplier of service but does not include a person engaged in the supply of restaurant service.
- A person engaged in the supply of non- taxable goods. Non- taxable person is the goods which are taxable under GST law.
- A person engaged in the supply of goods through an Electronic Commerce Operator and collects Tax at Source under Section 52 of the CGST act.
- Goods in course of interstate trade or commerce or imported from a place outside India and the goods purchased held with him on the appointed date
- Goods held in stock are not purchased from an unregistered supplier and in case pay tax under reverse charge mechanism
- A person engaged in manufacturing of goods notified under section 10 (2) (6) of the CGST act either in 2016-17 or later.
Registration Under GST Composition Scheme- How To Apply?
GST Registration is compulsory for availing the benefit of GST composition scheme. A person who is already registered under any of the existing laws and obtained a provisional GST Registration has to file an electronic intimation in the Form GST CMP- 01.
Furthermore, a registered person who opts for composition levy has to file an electronic intimation in Form GST CMP-02 prior to the commencement of financial year with financial statement in Form GST ITC- 03 within 60 days of commencement of F.Y to proclaim reversed on inputs/capital goods in stock, in semi-finished or in finished goods subject with the sub-rule (4) of Rule 44 of CGST Rules, 2017.
However, a person cannot choose to opt for the GST composition scheme in one state and not in other states during the same financial year. Furthermore, if a person is not registered under existing law but applied for fresh registration under the Rule 8 of the CGST Rules, 2017 may opt for the scheme by giving necessary information under Part B of the Form GST REG- 01.
How to opt-out of GST Composition scheme?
In case of change of mind, a composition dealer wants to opt-out of the GST Composition Scheme by submitting a GST CMP-04 Form within 30 days of intimating the option of withdrawal. The person will furnish all the details of stock input by filing the GST ITC- 01. For the withdrawal from composition levy, the composition dealer can file an application within 7 days from the date when since the taxpayer has failed to comply with the conditions of Section 10 of the CGST or SGST Act or rules made hereunder. Also, a voluntarily opting out from the Composition levy can be done by the taxpayer by filing an application.
What is a GST Composition scheme Rate?
Following are the rates prescribed for three different categories of suppliers under GST Composition Scheme-
- The manufacturer has to pay 2% GST tax (1% CGST and 1% SGST/UTGST) on the turnover in a state or Union Territory as the case may be.
- A person engaged in service of the restaurant according to clause (b) of Para 6 of Schedule II of the CGST Act, has to pay 5% ( 2.5% CGST and 2.5% SGST/UTGST) of turnover in a state or Union Territory as the case may be
- A person engaged in any other supplies( except as notified by govt. such ice- cream, Pan masala or tobacco products) has to pay only 1% GST tax, of turnover in a state or Union Territory as the case may be
|Composition Scheme – Applicable GST Rate|
|Type of Business||CGST||SGST||Total|
|Manufacturer & Traders (Goods)||0.5%||0.5%||1.0%|
|Restaurants not serving alcohol||2.5%||2.5%||5%|
*Service providers are not eligible for Composition Scheme
Furthermore, the Normal Rate of Tax is charged in the following cases
- Reverse Charge Mechanism under GST
- Purchase from an unregistered dealer
- Import of Service
What is Effective Date for GST Composition Scheme?
Effective Date for the taxpayer to obtain the GST Composition Scheme, who are already registered under any other existing laws and obtained provisional registration under GST laws, have to opt the scheme before the appointed day within 30 days of the as extended of the appointed day.
In addition to above, the registered taxpayer wishes to opt for registration under the GST Composition scheme have to submit Form GST REG-02 at the beginning of the financial year.
The effective date for a person applied to fresh registration under Rule 8 of the CGST Rules, 2017 by providing the necessary information under the Part B of FORM GST REG- 01 shall be the effective date of registration as per sub-rule 2 or 3 of Rule 10 of the CGST Rules, 2017.
What is GST Composition Scheme Returns?
You need to file GST Scheme Returns once in every quarter i.e. GSTR-4 on 18th of the month succeeding the relevant quarter –
- A registered person paying tax under the provisions of the GST Composite Scheme shall furnish a return. The returns after filed quarterly in the prescribed format within 18 days after the completion of the relevant quarter.
- GST-4 is file under GST Composition Scheme.
- Composition dealers will furnish first return for the period starting from the date they become a registered taxable entity till the end of the quarter.
- To file an annual return, GSTR 9A is filed by the 31st December of the next financial year.
List of Various Forms Available under GST Composition Scheme
|GST CMP-01||Registration under Composition scheme|
|GST CMP-02||Intimation to OPT out of Scheme|
|GST CMP-03||Details of Stock and inward supplies from an unregistered person|
|GST CMP-04||Intimation of Withdrawal from the scheme|
|GST CMP-05||Show cause notice on any contravention of any rules or act|
|GST CMP-06||Reply to show cause notice|
|GST CMP-07||Issue of Order|
- Easy Compliances
- Minimum Tax Liability generating more profit
- Availability of Liquidity and Cash Flow
- Opportunities to the small taxpayer to establish the market by offering competitive prices
- Limited business territory not promoting inter-state transactions
- Non-availability of input tax credit leading to less preference
- A composite dealer will bear the tax and cannot pass to the customer
- Heavy penalties for non-compliance of composition scheme
How Composition dealer raise the Bill of Supply?
Composition dealer cannot issue tax invoice because charging tax from their customers is not permitted. So, in that case, they need to pay the tax out of their own pocket. Hence, to avoid that dealer has to issue a Bill of Supply.
The GST Composition scheme mainly benefits the small & medium enterprise and restaurants as they remain outside the ambit of the normal levy. The scheme contributes on a large scale to the GDP as well as Job sector of the company.
Read our article:Detailed Analysis of Reverse Charge Mechanism under GST