GST composition scheme was implemented under the respective State VAT Laws with conditions applied on eligibility for the scheme accordingly. GST composition scheme assures greater compliance without the requirement of maintaining records. This system is missing in Service Tax laws.
Latest Update
13th October 2022
- The ICAI has shared the second edition of the handbook on the composition scheme for Chartered Accountants. Read PDF
09th July 2022
- The important message for some composition taxpayers regarding the negative balance removal is that the process has been completed by the government. read more
09th May 2022
- The Maharashtra Authority of Advance Ruling (AAR) has issued the order for the M/s. KPC Projects Ltd. In the order, Shri T.R.Ramnani and other members said the 18% GST has to be paid for the composite supply of construction hospital works. Read More
GST Software Demo for Composite Taxpayers
32nd Council GST Meeting for Composition Traders
- The annual turnover limit increased by GST council to 1.50 Crores, effectively from 1 April 2019
- Annual filing of GSTR 4 return instead of quarterly. Also, tax is paid to be deposited on a quarterly basis.
- 6 percent GST rate applicable to the Composition scheme for service providers and turnover up to 50 lakh per annum
Note:
- The above amendments shall be applied after the official government notification.
- More: 32nd GST Council Meeting Updates for Composition Traders
Every taxation system has some prescribed rules or regulations which must be followed by individuals, taxpayer or business owners. Maintaining records properly, submission or filing returns timely, simplified generation, and periodic payment of taxes are some of the essential elements of the taxation system for corporate taxpayers. However, business enterprises and owners are facing difficulties to cooperate with such responsibilities of law. It happens just because of a lack of knowledge and the majority of people is not aware of the taxation system.
In 28th GST council meeting, the FM has decided to extend the threshold limit of composition scheme taxpayers from 1 crore to 1.5 crores. Also, included the 10% provision of normal taxpayer annual turnover within the composition scheme if in case the given 10 percent is provided as the service.
Key Features of GST Composition Scheme
Eligibility: – Everyone is not eligible to register under the GST composition scheme. Taxpayers or people whose annual turnover is up to INR 1.5 crore in a financial year. Turnover for special category States, except Jammu & Kashmir and Uttarakhand, the limit is now increased to Rs 75 Lacs. While the turnover threshold for Jammu & Kashmir and Uttarakhand will be Rs 1 crore must register under the GST composition scheme. The small traders should fill up GST CMP-01 form to accept the scheme.
Special Eligibility:- The GST council has included normal taxpayers within the composition scheme in case 10% of annual turnover is provided as a service.
Quarterly Filing Returns: – Instead of submitting returns 3 – 4 times in a month, taxable persons or registered taxpayers will be required to submit or filing tax returns only one time in every quarter under the GST composition scheme.
Intra- State Supplies: – Local suppliers, who supply goods or services within a state can take advantage of the GST composition scheme. Inter-state suppliers will come under the regular GST laws.
Bill of supply, not tax invoice: – Registered taxpayers under the GST composition scheme will be required to show the bill of supply instead of tax invoice to the tax authorities. A person paying taxes under the composition scheme can issue a bill of supply instead of an invoice. Exemptions up to 5 lakhs for services under the composition scheme are also available.
Not Eligible for Input Tax Credit: – According to section 16, goods and services on which composition tax has already been paid (under section 8) do not apply for Input Tax Credit.
Tax Rate: – Manufacturers – 1% ( .5% central and .5% state), Restaurants services – 5% ( 2.5% central and 2.5 state ), Composition levy eligible – 1% ( 0.5% central and 0.5% state )
GST Only on Taxable supplies: – Earlier it was a provision to pay composition GST even on the exempted goods but now after 1st January 2018, the GST will be only payable on the taxable goods.
Penalty: – If the taxable person is not eligible for the GST composition scheme, then the tax authorities can charge a penalty equal to the amount of tax on such person along with his tax liability. Be careful when availing of this scheme and paying taxes. The penalty will be imposed according to the provision of section 73 or 74 if an individual represents incorrect data under the composition scheme.
Voluntary Registrations: – For availing of the benefits of this scheme, taxpayers need to make voluntary registration. If in case, the taxpayer’s annual income turnover exceeds 75 lakh then he will be transferred to the regular scheme. Taxpayers who are already a part of VAT composition need to voluntarily register under this scheme.
Note: The eligibility and service supply exemption is under review after the 23rd GST Council meeting
Highly Recommended: GST Forms: Return Filing, Rule, Registration, Challan, Refund, Invoice
Registration Procedure Under the Composition Scheme
Registered or existing taxpayers not under the Composition Scheme may prefer to opt for it (subject to being qualified), only from the beginning of the next financial year. Tax returns to be filed on as or before 31 March of the previous year.
If in case dealers want to switch to the normal scheme, during the year, they may be allowed to do it. Although, they are not able to switch over to the Composition scheme again within the same Financial Year
Filing Returns Under the GST Composition Scheme
Individuals or registered taxpayers can pay tax under the provisions of Composition Scheme shall provide a return in an official form and official manner within the eighteen days after the end of the relevant quarter.
GST CMP 08 form has been officially declared by the government for depositing payment quarterly under the Composition Scheme.
FAQs on GST Composition Scheme
Q.1 Can a composition dealer purchase goods from an inter-state supplier?
Yes, of course, a person who has opted for composition scheme can procure goods from an inter-state supplier without any restrictions
Q.2 What are the specified composition rates?
Composition rate is uniform for dealers & manufacturers at 1% ( 0.5% Central tax plus 0.5% State tax). Composition rate for Restaurant Services is 5% (2.5% Central tax plus 2.5% SGST) of the turnover. Composition rate for service providers is 3%
Q.3 Is it mandatory for a Composition Dealer to maintain detailed records?
No, it is not mandatory for a registered Composition dealer to maintain detailed records as needed by a normal taxpayer.
Q.4 Is a Composition Dealers allowed to avail Input Tax Credit?
No, Composition dealer is not allowed to avail Input Tax Credit. A taxpayer who opts to pay tax under the composition scheme cannot take credit on his input supplies
Q.5 Is composition dealer responsible to pay both, the Reverse charge and a fixed percentage of normal GST which he is supposed to pay?
If the reverse charge is applicable on a specific supply then the composition dealer is liable to pay GST under reverse charge as a recipient of supply at standard GST rates
Q.6 Can the service provider go for the Composition Scheme?
Yes, Composition scheme for services has been introduced with an initial limit of Rs 50 Lakh, taxable at 6%, beginning from April 1, 2019
Q.7 Can a person avail ITC on the stock after being denied to pay tax under composition from an authorised officer?
Yes a person can still avail ITC by filing a statement in FORM GST ITC-01 (containing details of input stocks along with the inputs contained in semi-finished or finished goods present in stock) on the date on which the option is refused as per order in FORM GST CMP07, within a period of thirty days from the order
Q.8 When does an individual who opted for composition, pay tax?
An individual who opted for composition pays tax on a quarterly basis prior to the 18th* of the subsequent month of the quarter during which the supplies were made (changeable by the government notification)
Q.9 Can a Composition Dealer issue Tax Invoices?
No, a Composition Dealer can not issue a tax invoice because he has to pay the tax out of his own pocket and he is not permitted to recover the same from the customers. He is bind to issue Bill of Supply
Q.10 What are the different types of returns, a Composition Dealer has to file?
A Composition Dealer has to file one return i.e. GSTR-4 on an annual basis, CMP 08 on a quarterly basis.
Q.11 Can a Composition Dealer collect tax from customers?
No, a Composition Dealer has to pay taxes from his own sources and he is not eligible to recover the composition tax from the buyer
Q.12 Can an interstate supplier opt for Composition Scheme?
An interstate supplier can not opt for Composition Scheme as it is available only for dealers imbibed in intra-state supplies
Q.13 How is availed input credit treated when one switch on to Composition Scheme from the normal scheme?
In such a case when a person switches on to composition scheme from normal scheme, he/ she becomes accountable to pay an amount equal to the credit of input tax in terms of inputs present in stock on the day instantly after the date of the switchover. The remaining balance of input tax credit in the credit ledger after payment of such amount will be treated inconsiderable
Q.14 Can I choose for Composition Scheme in one year and flip flop in the later year?
Yes, You are allowed to switch between the Composition Scheme and the normal scheme on the basis of your turnover. The same switchover can be declared on the GST Portal. However, this flip flop comes along with alterations in the way you issue invoices and file your returns
Q.15 Is the alternative to pay tax under composition practicable at any time of the year?
No, the tax under composition cannot be paid at any time of the year. A registered taxpayer is supposed to provide a declaration on the GST Portal in FORM GST CMP-02 prior to the beginning of every financial year
