WHY WAS THE GST COMPOSITION SCHEME INTRODUCED?
The GST composition scheme was set up to ensure easier compliance with the new tax regime for small taxpayers. The GST Regime has brought about a lot of changes resulting in an increase in GST returns being filed. The new and small taxpayers, start-ups, small and medium enterprises find it tedious and difficult to pay tax every month as they have to comply with the GST formalities every time. The Composition Scheme under GST provides an easier, convenient portal to comply with these formalities.
WHO CAN OPT FOR THE GST COMPOSITION SCHEME?
- Businesses with an annual turnover of up to 1.0 crore (According to the 23rd GST Council Meeting on the 10th of November 2017, the main threshold of the GST composition scheme was recommended to be increased to 1.5 Crores but this is yet to be notified).
- In case of businesses in the state of Himachal Pradesh and North-Eastern states, the limit is 75 lakhs.
- Manufacturers of goods, dealer and restaurants (excluding restaurants serving alcohol) can opt for a composition scheme.
WHO CANNOT OPT FOR THE GST COMPOSITION SCHEME?
- Taxpayers supplying exempt supplies.
- Manufacturers of tobacco, ice-cream and pan masala.
- A causal taxable person or a non-resident person.
- Suppliers of services besides restaurant related services.
- Businesses supplying goods through an e-commerce operator.
CONDITIONS FOR AVAILING BENEFITS OF THE GST COMPOSITION SCHEME?
- A dealer opting for the composition scheme under GST cannot claim any input tax credit.
- Taxpayers are not allowed to make any inter-state supply of goods.
- Dealers cannot supply any GST exempted goods.
- Taxpayers have to pay tax at oral rates of the transactions under the Reverse Charge Mechanism.
- The taxpayer must include the words ‘composition taxable person’ on all notices or signboards prominently displayed at their place of business.
- If a taxable person has various segments of his business under the same PAN, they have to register every such business under the composition scheme collectively or choose to opt out of the scheme.
- It is mandatory for the taxpayer to mention the words ‘composition taxable person’ on all bills of supply issued by him.
- Those who supply goods can provide services of up to Rs. 5 lakh.
HOW CAN TAXPAYERS OPT FOR GST COMPOSITION SCHEME?
To opt for the composition scheme under GST, a taxpayer must file the form GST CMP-02 with the government which can be done through the GST online portal. This intimation must be given at the commencement of every Financial Year by the dealer who wants to opt for the Scheme.
WHAT ARE THE DOCUMENTS A COMPOSITION DEALER MUST ISSUE WHILE MAKING A SUPPLY?
Composition dealers cannot issue tax invoices as the dealer cannot charge tax from their customers. They are required to pay taxes out of their own pocket. Thus, a dealer is required to give a Bill of Supply (A Bill of Supply is issued when GST is not applicable on a transaction or when GST is not to be recovered from the customer). The dealer has to mention “composition taxable person, not eligible to collect tax on supplies” at the top of the Bill of Supply.
RETURN FILING FOR COMPOSITION DEALER
A dealer must file a quarterly return under GSTR-4 by the 18th of the month at the end of the quarter and an annual return GSTR-9A by the 31st December of the next financial year. Also, it is to be noted that a dealer who is registered under the GST composition scheme is not required to maintain a detailed record.
Latest updates for GSTR-4 for the period July-Sept are dated 18.10.2018.
WHAT IS THE ADVANTAGE OF THE GST COMPOSITION SCHEME?
The benefits one can avail under the GST composition scheme are as follows:
- Lesser requirements and compliances to be adhered to (returns, issuance of invoice, maintaining books of record). A composition dealer is exempted from the burden of 3 monthly returns. Instead, he is required to file only 1 quarterly return, every 3 months and 1 annual return. This saves the dealers time and effort.
- In comparison to dealers who are liable to register, a dealer under this scheme enjoys the advantage of paying a comparatively lower rate of tax. The tax rate is fixed at 1% for manufacturers and traders and 5% for small restaurants involved in supplying of drinks and food for human consumption.
- High liquidity since the taxes are at a lower rate.
WHAT IS THE DISADVANTAGE OF THE COMPOSITION SCHEME?
The disadvantages of the GST composition scheme are as follows:
- Restricting businesses to a limited territory. Composition dealer cannot engage in the manufacture of notified products specified by the Government and GST council.
- The dealer is not permitted to carry out inter-state transactions.
- Input Tax Credit is not available to composition dealers.
- The dealers opting for the scheme will not be allowed to supply exempt goods or goods and services through an e-commerce portal.
For more information, visit Company Vakil website.
