Composition Scheme under GST (For Goods and Services)

Composition scheme under GST is a scheme for small taxpayers who do not want complex compliance and their turnover is very less.

So this scheme provides an option for the small taxpayers to pay the GST liability at a very low rate (fixed rate) and you do not need to maintain huge records and even no need to issue tax invoice.

So people with fewer turnovers can choose this scheme in order to get rid of hassle compliance.

Let’s understand in detail what the requirements of composition scheme are:

What is the Composition Scheme under GST?

Composition scheme is a scheme specially made for the benefit of small taxpayers whose turnover is below Rs.1.5 crore.

For the North-Eastern states and Himachal Pradesh the limit for the same is Rs.75 Lakh.

As per 32nd GST council meeting held on 10th Jan, 2019, services providers (other than restaurant services) can also opt for composition scheme if turnover is below Rs.50 Lakhs.

If a person opts for composition scheme then he has to pay a fixed rate of GST (which is very low rate in comparison to normal rate).

By opting for this scheme one can take benefits of lower GST rate as well as ease of compliance.

Also Read: GST- QRMP Scheme (Quarterly Return Monthly Payment Scheme)

What are the conditions for opting composition schemes under GST?

For opting composition scheme one should keep in mind the following conditions:

If you opt for a composition scheme you cannot claim Input Tax Credit.
You cannot supply non-taxable goods under GST (Eg. alcohol)
You have to pay tax at normal rates of the transaction covered under the reverse charges mechanism.
If there are different businesses under the same PAN then you have to apply a composition scheme for all the businesses.

Example: You cannot apply for a clothes business with composition and for an electronic business with normal rate. If you are opting composition schemes then you must apply for all businesses under the same PAN.

You have to mention “Composition taxable person, not eligible to collect tax on supplies” at the top of the bill of supply.
You have to mention the words “Composition Taxable Person” on every notice board displayed prominently at their place of business.
You cannot collect GST. You have to pay GST at a very nominal rate from your pocket. So for this you cannot issue a tax invoice. You have to issue only bills of supply.
You cannot make inter-state supply. If you are opting for a composition scheme then your supply must be intra-state.

Who is not eligible for the Composition Scheme under GST?

Following persons cannot opt for composition scheme:

Manufacturer of Pan Masala, Tobacco or Ice cream
A casual taxable person
A non-resident taxable person
Person making inter-state supply
Businesses which supply goods through an e-commerce operator

Also Read: What is e way bill under gst | eway bill rules | in India

How to opt in for the Composition scheme under GST?

If your turnover in the preceding year is below the threshold limit then you can opt for this scheme. Once you opt, you have to apply it for all your businesses.

You can opt in for this scheme on the GST Portal by filling form CMP-01 and CMP-02 before the beginning of the financial year.

Suppose you want to opt for a composition scheme for FY. 2020-21 then you have to intimate for the same on or before 31st March’2020 by filling the form CMP-01 and CMP-02. There is no need to file fresh intimation every year.

How to opt out from the composition scheme under GST?

You are required to opt out from composition scheme if:

Aggregate turnover exceeds the threshold limits.
Business / Taxpayer not fall under the eligibility criteria any more.

Then a person is required to file GST CMP-04 within 7 days from the date on which they plan to opt out of the composition scheme.

Once you opt out of the composition scheme then you need to pay GST at normal rates.

What is the GST Rate under Composition Scheme?

Rate of Composition Tax

In case of	CGST	SGST / UTGST	GST Rate
Manufacturer and Trader of goods	0.5%	0.5%	1%
Restaurants (Not servicing alcohol)	2.5%	2.5%	5%
Service Providers (other than Restaurants)	3%	3%	6%

This GST payment for composition taxpayers is out of pocket. They cannot collect tax and avail Input Tax Credit.

Also Read: Section 194Q: (TDS on Purchase of Goods above Rs. 50 Lakhs)

Can composition taxpayers issue tax invoices?

Composition taxpayers cannot collect tax so there is no requirement for issuing a tax invoice. Composition taxpayers need to issue a bill of supply on which the wording should be written like “Composition taxable person, not eligible to collect tax on supplies”.

Which returns to be filled under the composition Scheme?

Following are the returns which required being file by composition dealer:

CMP-08

Taxpayers are required to pay tax in quarterly statement CMP-08 by 18th of the month after the end of the quarter.

GSTR-4

It is to be filed annually by 30th April of the next financial year.

GSTR-9A

An annual return to be filled by 31st December of the next financial year (Waived off for FY 2017-18 and FY 2019-20).

What are the benefits and disadvantages of Composition Scheme?

Benefits

Compliance is less (i.e. No need to maintain books of record for issue of invoices)
Fixed rate of GST (limited liability)

Disadvantages

Restriction on inter-state supply
Cannot avail Input Tax Credit
Not eligible to supply non-taxable goods.

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Conclusion

Composition schemes under GST play a very important role for those taxpayers who have fewer turnovers and do not want complex compliance's of GST system.