October 5, 2024

Composition Scheme GST

Composition Scheme under GST is a reduced compliance mechanism scheme available for small and medium entities at their option. The taxpayers registering under this scheme will have to pay a fixed percentage of tax on their turnover and will have to file fewer GST returns, as compared to regular taxpayers.

Advantages of GST Composition Scheme:

  • The taxpayers don’t need to maintain elaborate accounts and records. The tracking of sales would be sufficient for GST.
  • The taxpayers get the benefit of paying taxes quarterly instead of every month.
  • The taxpayers can file a simple quarterly return instead of a detailed monthly return.
  • The taxpayers can register simple annual returns, as compared to the regular yearly returns.

Limitations Under Composition Scheme in GST:

  • The scheme is not available for entities dealing with alcoholic liquor and petroleum products.
  • The scheme is not available to those who make sales to other states, SEZ and Export.
  • The scheme is not allowed for the sales made through an electronic commerce operator like Amazon & Flipkart.
  • The scheme is not applicable for the manufacturers Ice-cream, Pan Masala & Tobacco.
  • The scheme is not for the casual taxable person or a non-resident taxable person.
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Conditions for availing GST Composition Scheme:

  • The value of supplies should not exceed ₹ 1.5 Crores for the manufacturers of goods, dealers, and restaurants that do not serve alcohol. It should not exceed ₹ 50 Lakhs for the supplier of services. The claim of credit for input taxes is not applicable.
  • A bill of supply must be issued instead of an invoice, and every bill of supply issued should mention  “Composite Taxable Person.”
  • Every notice or signboard displayed the place of business should mention “Composition Taxable Person.”
  • The beneficiaries of the GST Composition Scheme should not collect any GST from their customers on their sales.

Compliances under Composition Scheme in GST:

Registration :

The people who want to register should exercise their option to pay tax under the composition scheme in Part B of FORM GST REG-01. This will be considered as an intimation to pay tax under the composition scheme.

Invoice Type: 

People registering under Composition Scheme shall issue a bill of supply instead of Tax Invoice and no tax should be charged on it.

Input Tax Credit: 

They will not be eligible for any Input Tax Credit & all the input taxes paid would be charged to his expense.

GST Rate : 

  • Manufacturers, other than that of goods like Ice cream, Pan Masala, Tobacco products, etc would be notified by the government: 2% ( 1% Central tax plus 1% State tax) of the turnover
  • Restaurant Services : 5% ( 2.5% Central tax + 2.5% SGST) of the turnover

GST Payment :

Taxpayers would be needed to pay GST payment on the sales made by them and taxes on an applicable reverse charge quarterly at a percentage applicable to him.

GST return :

Particulars            Return Type                 Due Date
From 01st April to 30th June           GSTR-4    18th July
From 01st July to 30th September   GSTR-4      18th October
From 01st October to 31st December  GSTR-4    18th January
From 01st January to 31st March   

GSTR-4   

GSTR 9A

18th  April  

Opting out of Composition Scheme:

A Tax Payer can opt-out of the composition scheme in the following ways.

  • Auto Withdrawal – When the taxpayer ceases to fulfill any of the conditions specified above for availing composition scheme benefit.
  • Voluntary Withdrawal – The taxpayer can apply for withdrawal from the composition scheme voluntarily.

Composition Scheme – FAQ’s :

Who can opt for composition scheme?

Businesses with annual turnover up to ₹1.5 Crore who is into the manufacture of goods, dealers & restaurants that don’t serve alcohol. Also, service providers with  turnover up to ₹50 Lakhs can opt for composition scheme. Turnover of all businesses with the same pan has to be added for calculating annual turnover.

What happens if my turnover crosses the threshold limit during the financial year?

The benefit of the composition scheme would lapse once the business crosses specified turnover limits.
You would be required to file an intimation for withdrawal from the scheme in FORM GST CMP-04 within seven days from the day on which the threshold limit has been crossed.

What shall a composition dealer do if he wants to make inter-state sale or sale through E-commerce?

Composition Scheme does not allow to make inter-state or e-commerce sales, however, when a business owner wants to do the same he can withdraw from the composition scheme and apply for registration under normal scheme.

What is the validity of the composition levy?

The benefit of composition levy shall be valid so long till he satisfies all the conditions specified for availing composition levy.

Can a composition dealer purchase from suppliers who are registered in other states?

Yes, there is no restriction on procuring goods from inter-state suppliers by persons opting for the composition scheme.

How will the aggregate turnover be computed for composition?

Aggregate turnover will be computed based on the turnover on PAN India basis and will include the value of all taxable supplies, exempt supplies, and exports made by all people

Is there any option to pay tax under composition scheme in a given year?

Yes. There is an option to pay tax under composition scheme at any time in a financial year. Once the scheme is opted it cannot be changed during the relevant Financial Year. If we wish to opt out of composition scheme it can be done only after the completion of the financial year in wish it is opted.