Goods and Services Tax (GST) is set to bring a new regime of business compliance in India. Now-a-days, large organizations have resources as well as the expertise in order to address these requirements. On the other side, many Start-ups and Small and Medium Enterprises (SMEs) struggles in order to complete these provisions. To resolve such kind of scenarios, the government has introduced a Composition Scheme under GST.


What is Composition Scheme?

Composition scheme is a convenient way for the small taxpayers in order to escape from too many GST formalities and pay the tax at a fixed rate based on their business turnover.

Under this scheme, a taxpayer will pay tax as a percentage of his/her turnover during the financial year without the benefit of Input Tax Credit. The floor rate of tax for CGST and SGST shall not be less than 1%. A taxpayer opting for composition scheme will not collect any tax from his/her customers.

When the eligible taxpayer is opting for the Composition Scheme under GST, a taxpayer has to file a summarized returns on a quarterly basis, instead of three monthly returns (as is applicable for normal businesses).

Key Features

  • Eligibility: Turnover must be below Rs. 75 lakhs (Rs. 50 Lakhs for North-Eastern States)composition scheme
  • Tax rate:  Fixed tax rate on the total sales turnover
  • Input Tax Credit:  Not eligible for Input Tax Credit
  • Place of supply:  Applies only to the Intra-State supplies
  • Return:  No monthly filing, only Quarterly returns
  • Billing:  Issues Bill of Supply & not tax invoice

Who can avail composition scheme?

Only those persons who fulfill all the following are eligible to apply for composition scheme:

  • deals only in the intra-state supply of goods (or service of only restaurant sector).
  • does not supply goods not leviable to tax.
  • have an annual turnover below Rs. 75 Lakhs (Rs. 50 Lakhs for north-eastern states) in preceding financial year.
  • he shall pay tax at normal rates in case he is liable under reverse charge mechanism.
  • not supplying through e-commerce operator.
  • not a manufacturer of – ice cream, pan masala or tobacco (and its substitutes).

Why should you opt for composition scheme under GST?

  • No requirement to maintain records
  • Hassle free payments of tax at single rate
  • Filing monthly returns is a costly and cumbersome process that may just be asking too much from a small dealer trying to grow a business

A detailed example to understand the benefit of composition scheme for small dealers as follows:

composition scheme

Tax Composition

composition scheme

The eligibility criteria under composition scheme has been increased to Rs. 75 lakhs (Rs. 50 Lakhs for North Eastern States).

  • Traders  will have to pay 1% tax.
  • Manufacturers will have to pay 2% tax.
  • Restaurant businesses will have to pay 5% tax.

However,  no input tax credit (ITC) will be made available.

Return Filing Process

It is only a simplified quarterly return in FORM GSTR 4 for which the taxpayer only requires indicating:

  • Total consolidated value of the supplies. Invoice-wise detail is not to be disclosed.
  • Tax paid at the composition rate.
  • Invoice level purchase information for the purchases made from normal taxpayers, which will be auto-populated in GSTR 4A from supply invoices uploaded by the counter party normal registered taxpayers.

Invoicing Rules under GST

The person who is registered as a composition taxpayer shall at the top of the bill of supply issued by him, mention the words- “not eligible to collect tax on supplies”  because person registered as the composite taxpayer is not eligible to collect tax on the supplies from his buyer rather tax is paid by the composite taxpayer himself at the special rates decided for the composition dealers.

Process to get registered as Composite Taxpayer

There can be two cases under the process of getting registered as composite taxpayer:

CASE 1- Registration  process under composition scheme for a person who is already registered under current tax regime

  • A person who is registered under the current regime and applying for the Registration under GST will be given Provisional Certificate first.
  • If that person want to get registered as composite taxpayer under GST, he shall file an intimation in FORM GST CMP-01, duly signed or verified through electronic verification code.It may be noted that that it has to be filed prior or within 30 days after the appointed day(July 1, 2017) :
  1. directly on the common portal
  2. through a Facilitation Centre
  • Further, he has to give the details of stock, whether purchased from registered or non registered person, held by him before he has opted to get registered under the composition scheme in FORM GST CMP-03 within 60 days in the electronic form.
  • The registered person shall not collect any tax from the appointed day but shall issue bill of supply for supplies made after the said day.

CASE 2- Registration process under composition scheme for a person who is applying for fresh registration.

  • A person who is applying for the fresh Registration under GST has to file FORM REG-01 and under Part B of the form he has to select the option of Section 10 (Registration as composite taxpayer).

Conclusion

The extension of eligibility criteria will benefit small & medium enterprises (SME’S) and restaurants as they continue to remain outside the ambit of normal levy. This will contribute on a large scale to the GDP as well as job sector of the country.

In case you are confused about GST as a business owner, feel free to consult the GST experts at LegalRaasta. You can get comprehensive assistance on GST Registration online and GST Return Filing. You can also use our GST compliance software for doing end-to-end GST compliance.