The Goods and Services Tax (GST) is a comprehensive tax system implemented in India on 1st July 2017. GST replaced the existing indirect tax system and aims to bring uniformity in the taxation system across the country. One of the options available to small taxpayers under GST is to opt for the Composition Scheme. In this blog, we will discuss the Composition Scheme and its benefits.
What is the Composition Scheme?
The Composition Scheme is a simple and easy-to-comply taxation scheme designed for small taxpayers. Under this scheme, the taxpayer is required to pay a fixed percentage of their turnover as tax instead of the regular GST rates. The composition scheme is available only for small taxpayers whose annual turnover does not exceed Rs. 1.5 crore.
The Composition Scheme is designed to simplify the compliance requirements for small taxpayers. The taxpayer is required to file a quarterly return instead of the regular monthly returns.
The taxpayer under the Composition Scheme is required to pay a fixed percentage of their turnover as tax. The tax rates for composition scheme taxpayers are lower than the regular GST rates. The tax rates under the composition scheme are as follows:
1. 0.5% for manufacturers and traders
2. 1% for restaurants
3. 5% for other suppliers of services
The Composition Scheme enables small taxpayers to conserve their cash flow as they are required to pay tax at a lower rate. This helps in the smooth running of their business.
The Composition Scheme eliminates the requirement for maintaining detailed records and invoices. The taxpayer is required to maintain a simplified record of their purchases and sales.
The taxpayer should have an annual turnover of up to Rs. 1.5 crore to be eligible for the Composition Scheme.
The Composition Scheme is available for small manufacturers, traders, and suppliers of services. The scheme is not available for manufacturers of goods such as pan masala, tobacco, and ice cream.
The Composition Scheme is not available for taxpayers who are involved in inter-state supplies of goods and services.
The Composition Scheme under GST is designed for small taxpayers whose annual turnover does not exceed Rs. 1.5 crore. The scheme is available to the following businesses:
Small manufacturers can opt for the Composition Scheme if they are involved in the manufacture of goods such as food products, textiles, and other non-alcoholic beverages.
Small traders who are involved in the buying and selling of goods can also opt for the Composition Scheme. This includes businesses such as small retail stores, wholesalers, and distributors.
The Composition Scheme is also available to small service providers whose turnover does not exceed Rs. 50 lakhs. Service providers such as small restaurants, beauty parlors, and consulting firms can opt for the scheme.
It is important to note that certain types of businesses are not eligible for the Composition Scheme, such as manufacturers of pan masala, tobacco, and ice cream. Also, the scheme is not available for taxpayers who are involved in inter-state supplies of goods and services. Therefore, businesses should carefully evaluate their eligibility before opting for the Composition Scheme.
While the Composition Scheme is designed to simplify the compliance requirements for small taxpayers, not all businesses are eligible to opt for the scheme. The following types of businesses cannot opt for the Composition Scheme:
Manufacturers of pan masala, tobacco, and ice cream are not eligible for the Composition Scheme.
The Composition Scheme for service providers is available only if their turnover does not exceed Rs. 50 lakhs in the previous financial year. Service providers with turnover above Rs. 50 lakhs cannot opt for the scheme.
The Composition Scheme is not available for taxpayers who are involved in inter-state supplies of goods and services. The scheme is available only for intra-state supplies.
The Composition Scheme is not available for casual taxable persons or non-resident taxable persons.
E-commerce operators who are required to collect tax at source under Section 52 of the CGST Act cannot opt for the Composition Scheme.
Therefore, businesses should carefully evaluate their eligibility before opting for the Composition Scheme.
To avail of the Composition Scheme under GST, a taxpayer needs to fulfill certain conditions. These conditions are as follows:
The taxpayer should be eligible to opt for the Composition Scheme. The scheme is available for small taxpayers whose annual turnover does not exceed Rs. 1.5 crore. However, certain businesses such as manufacturers of certain goods, inter-state suppliers, and e-commerce operators are not eligible for the scheme.
The taxpayer should be registered under GST. A taxpayer who is not registered under GST cannot opt for the Composition Scheme.
The taxpayer should intimate the concerned GST officer of their intention to opt for the Composition Scheme by filing GST CMP-02 within the prescribed time limit.
The taxpayer cannot issue a tax invoice. They can issue a bill of supply instead of a tax invoice.
The taxpayer is required to pay tax at a lower rate than the regular GST rates. The tax rates for composition scheme taxpayers are as follows:
1. 0.5% for manufacturers and traders
2. 1% for restaurants
3. 5% for other suppliers of services
The taxpayer is required to file a quarterly return instead of the regular monthly returns. The taxpayer needs to file GSTR-4 by the 18th of the month succeeding the quarter.
The taxpayer cannot claim input tax credit on the purchases made. This means that they cannot reduce their tax liability by claiming credit for the GST paid on their purchases.
The taxpayer cannot make inter-state supplies of goods or services. They can only make intra-state supplies.
Therefore, businesses should carefully evaluate these conditions before opting for the Composition Scheme.
To opt for the Composition Scheme under GST, a taxpayer needs to follow the below-mentioned steps:
The taxpayer needs to log in to the GST portal using their credentials.
After logging in, the taxpayer needs to click on the ‘Services’ tab on the main menu.
The taxpayer needs to click on the ‘Registration’ tab and select ‘Application to opt for the Composition Scheme’ option.
The taxpayer needs to fill the form GST CMP-02 with the necessary details such as name, address, PAN, GSTIN, turnover, etc.
After filling the form, the taxpayer needs to submit it electronically through the GST portal.
Once the form is submitted, the taxpayer will receive an acknowledgement in form GST CMP-02 on their registered email address and mobile number.
After opting for the Composition Scheme, the taxpayer needs to file the first quarter return in form GSTR-4 by the 18th of the month following the end of the quarter.
It is important to note that a taxpayer can opt for the Composition Scheme at the beginning of each financial year. Once the taxpayer opts for the Composition Scheme, they cannot withdraw from the scheme for the rest of the financial year. Therefore, businesses should carefully evaluate their eligibility and the conditions before opting for the Composition Scheme.
A Composition Dealer is not allowed to issue a tax invoice. Instead, they need to issue a bill of supply for the goods or services supplied by them. A bill of supply is a document that contains details of the goods or services supplied by the Composition Dealer, but it does not include any tax information.
The bill of supply issued by the Composition Dealer should contain the following details:
1. Name, address, and GSTIN of the supplier.
2. A consecutive serial number not exceeding sixteen characters, in one or multiple series, containing alphabets or numerals or special characters hyphen or dash and slash symbolised as “-” and “/” respectively, and any combination thereof, unique for a financial year.
3. Date of issue of the bill of supply.
4. Name, address, and GSTIN of the recipient, if registered.
5. Description of goods or services.
6. HSN code (Harmonized System of Nomenclature) of goods or services.
7. Value of the goods or services supplied.
8. Any other applicable details such as discounts or freight charges.
9. Signature or digital signature of the supplier or his authorized representative.
The GST rates for a Composition Dealer are lower than the regular GST rates. The tax rates for Composition Dealers are as follows:
Composition Dealers engaged in the manufacturing of goods or engaged in trading activities are required to pay tax at the rate of 0.5% of their turnover.
Composition Dealers operating a restaurant, food joints, or canteen are required to pay tax at the rate of 1% of their turnover.
Composition Dealers providing other services such as professional, technical or any other service are required to pay tax at the rate of 5% of their turnover.
A Composition Dealer is required to make GST payment on a quarterly basis. The payment can be made by following the below-mentioned steps:
The Composition Dealer needs to log in to the GST portal using their credentials.
After logging in, the Composition Dealer needs to click on the ‘Services’ tab on the main menu.
The Composition Dealer needs to click on the ‘Payments’ tab and select the ‘Create Challan’ option.
The Composition Dealer needs to fill the details such as GSTIN, tax period, amount of tax payable, interest, late fees, etc. in the challan.
The Composition Dealer can select any of the payment modes such as Net banking, debit card, credit card, or NEFT/RTGS to make the payment.
Once the details are filled, the Composition Dealer needs to click on the ‘Generate Challan’ button.
The Composition Dealer needs to make the payment through the selected payment mode.
After making the payment, the Composition Dealer needs to file the GSTR-4 return by the 18th of the month following the end of the quarter.
A Composition Dealer is required to file the following returns:
A Composition Dealer is required to file GSTR-4 return on a quarterly basis. The due date for filing GSTR-4 is the 18th of the month following the end of the quarter. The return contains details of the turnover, tax paid, and other details required for calculating the tax liability for the quarter.
A Composition Dealer is required to file an Annual Return in Form GSTR-9A by the 31st of December of the following financial year. The return contains details of the turnover, tax paid, and other details required for calculating the tax liability for the financial year.
It is important to note that a Composition Dealer is not required to file monthly returns such as GSTR-3B or GSTR-1. However, they need to file the above-mentioned returns within the prescribed due date to avoid any penalties or interest. It is also advisable for Composition Dealers to maintain proper books of accounts and records to ensure compliance with the GST regulations.
In addition to the above-mentioned returns, a Composition Dealer may also be required to file other returns such as GSTR-7 (for TDS), GSTR-8 (for e-commerce operators), and GSTR-10 (for cancellation of registration) if applicable.
The Composition Scheme is an excellent option for small taxpayers who want to simplify their compliance requirements and reduce their tax liability. The scheme provides various benefits such as reduced tax liability, increased liquidity, and reduced compliance burden. However, it is essential to note that the scheme is not available for all types of businesses and has certain limitations. Therefore, taxpayers should evaluate their eligibility and requirements before opting for the Composition Scheme.
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