In order to reduce the burden of small businesses GST Council brought Composition Scheme
Thus, an option has been provided where they can opt to pay a fixed percentage of turnover as fees in lieu of tax
Eligibility For Composition Scheme
- Whose turnover is below Rs 1.5 crore can opt for Composition Scheme.
- In case of North-Eastern states and Himachal Pradesh, the limit is now Rs 75 lakh.
- Turnover of all businesses registered with the same PAN should be taken into consideration to calculate turnover
Who cannot opt for Composition Scheme
- Taxpayer supplying exempt supplies.
- Supplier of services other than restaurant related services
- Manufacturer of ice cream, pan masala, or tobacco
- Casual taxable person or a non-resident taxable person
- Businesses which supply goods through an e-commerce operator
Conditions for Opting for Composition Scheme
- No Input Tax Credit can be claimed by a dealer opting for composition scheme
- The taxpayer cannot make any inter-state supply of goods.
- The dealer cannot supply GST exempted goods
- Taxpayer has to pay tax at normal rates for transactions under Reverse Charge Mechanism
- If a taxable person has different segments of businesses (such as textile, electronic accessories, groceries, etc.) under the same PAN, they must register all such businesses under the scheme collectively or opt out of the scheme.
- The taxpayer has to mention the words ‘composition taxable person’ on every notice or signboard displayed prominently at their place of business.
- The taxpayer has to mention the words ‘composition taxable person’ on every bill of supply issued by him.
- Those supplying goods can provide services of up to Rs. 5 lakh,
How to Opt for Composition Scheme
>> This is to be done by filing GST CMP-02
>> After filing this form a Composition Dealer has to file GST CMP-03 within 90 days.
On successful submission, a success message is displayed along with the Application Reference Number (ARN).
How Should a Composition Dealer raise bill?
A composition dealer cannot issue tax invoice. This is because a composition dealer cannot charge tax from their customers. They need to pay tax out of their own pocket.
Hence, the dealer has to issue a Bill of Supply.
The dealer should also mention “composition taxable person, not eligible to collect tax on supplies” at the top of the Bill of Supply.
GST Rates on Composition Dealer
|Composition Scheme –Applicable GST rates:|
|Types of Business||CGST||SGST||Total|
|Manufacturer and Traders (Goods)||0.5%||0.5%||1%|
|Restaurant not serving Alcohol||2.5%||2.5%||5%|
|Service providers are not eligible for Composite Scheme|
How should GST payment be made?
GST Payment has to be made out of pocket for the supplies made.
The GST payment to be made by a composition dealer comprises of the following:
- GST on supplies made.
- Tax on reverse charge
- Tax on purchase from unregistered dealer.
what are the returns to be filed by composition scheme?
A dealer is required to file a quarterly return GSTR-4 by 18th of the month after the end of the quarter. Also, an annual return GSTR-9A has to be filed by 31st December of next financial year.
Also, note that a dealer registered under composition scheme is not required to maintain detailed records.
Every Tax Reform had its own Advantage and Dis advantages
- Lesser compliance (returns, maintaining books of record, issuance of invoices)
- Limited tax liability
- High liquidity as taxes are at a lower rate
Dis – Advantage are*
- A limited territory of business. The dealer is barred from carrying out inter-state transactions
- No Input Tax Credit available to composition dealers
- The taxpayer will not be eligible to supply exempt goods or goods through an e-commerce portal.
Looking at advantages and disadvantages, we can broadly say that composition levy is beneficial for small traders who want to avoid complexity and follow lesser compliance.
So, it is Advisable to get Guidance from Chartered Accountant regards”
- How to file GST CMP-02 as well GST CMP-03
- To file a quarterly return GSTR-4 by 18th of the month
- Annual return GSTR-9A has to be filed by 31st December of next financial year
- how to create Bill of Supply invoices , debit , credit notes under composite scheme