The composition scheme under GST has been introduced to safeguard the interests of small businesses. Businesses with turnover under Rs 1.5 crore can skip the hassle of GST formalities if they are registered under the GST composition scheme. The scheme also allows businesses with a low turnover to reduce their compliance and tax liability costs.
The Government of India launched a composition scheme under GST for small businesses with a turnover less than Rs 1.5 crore. The primary objective of the scheme is to save small businesses from tedious GST formalities, high costs of compliance, and tax liability. Taxpayers can choose to register under the scheme by intimating the tax authorities.
The GST composition scheme is optional, and businesses with a turnover up to Rs. 1.5 crore are eligible to opt for it. However, in Himachal Pradesh and the Northeastern states, the GST composition scheme turnover limit is Rs. 75 lakh. The CGST (Amendment) Act, 2018 states that a composition dealer can also supply services up to Rs 5 lakhs or 10% of the turnover, whichever is higher. The amendment came into effect on February 1, 2019. However, the 32nd GST council meeting proposed increasing this limit for service providers. While assessing eligibility for the scheme, the combined turnover of all businesses registered under the same PAN is considered. Also, any business wishing to opt for this scheme must be registered for GST.
The GST composition scheme is optional. Also, all taxpayers registered under the scheme are not eligible to avail of it. The taxpayers mentioned below are not eligible for the composition scheme in GST:
If taxpayers meet the GST composition scheme limit criteria, they can file GST CMP-02 with the government. They can do it using the GST portal. At the beginning of each financial year, the taxpayer must notify the tax authorities about their intent to opt for the GST composition scheme.
A composition dealer is not allowed to levy taxes on customers. Thus, a tax invoice cannot be issued. The dealer must pay the tax from their earnings and issue a bill of supply to the customers. The dealer must mention ‘composition taxable person, not eligible to collect tax on supplies’ right on top of the bill of supply.
The GST composition scheme for service providers includes businesses like manufacturers and traders, restaurants that do not serve alcohol, etc. Initially, composition dealers meant only suppliers of goods, with some exceptions. However, post FY19-20, the scheme has also been extended to service providers.
GST composition scheme rates for composition dealers are mentioned below:
To make it easier for you, refer to the table below:
|Type of Composition Dealer||Tax Rate|
|Manufacturers||1% of turnover|
|Restaurants (without alcohol service)||5% of turnover|
|Goods and Service (mixed supply)||6% of turnover|
|Goods and Service (composite supply)||1% of turnover|
Taxpayers can apply for the composition scheme under GST by filing form GST CMP-02 through the GST portal. If the dealer opting for the scheme wishes to continue with the scheme in the subsequent financial year, they must inform the tax department at the beginning of the financial year.
Composition dealers need to bear GST costs for the supplies themselves. The costs include GST applicable to the supplies, reverse charge, and purchases through unregistered dealers.
At the end of every quarter, the composition dealer must pay GST in a quarterly statement CMP-08. This must be done by the 18th of the month at the end of the quarter. GSTR-4 is the form used for quarterly returns. Apart from this, the dealer must also file annual returns through the GSTR-9A form. They must file this form by the 31st of December of the next financial year.
GST composition scheme rules do not require dealers to maintain detailed records.
Here are some disadvantages of registering for the GST composition scheme:
The composition scheme under GST is very beneficial for small businesses with a turnover under the threshold. However, it is not free of drawbacks. Dealers must read all GST composition scheme rules and conditions to determine if it is the right choice for their business. It is also a good idea to check with a GST professional. They will be able to guide better about suitability and required compliance.
Ans. Both new and existing taxpayers can apply for registration under the composition scheme in GST if they meet the eligibility criteria. The online application for composition levy can be filed on the GST portal. New taxpayers need to fill out Form GST REG-01 whereas existing taxpayers can opt for composition levy using GST-CMP-02. Those opting to switch from normal registration must do it before the financial year commences.
Ans. To change from normal GST registration to composite GST, you must pay an amount equivalent to the ITC based on inputs held in stocks on the day before switchover. Once you pay the amount, if there is any amount in the credit ledger, it would lapse.
You need to fill out form REG-CMP-02 before the financial year begins.
To switch to the composition scheme on the GST portal login to the taxpayers’ interface and go to services. Choose registration under the services menu and then select ‘application to opt for composition levy’. Read all the rules, fill out the form and submit.
Ans. If you wish to opt out of the composition scheme, you must inform the tax department. To do this, you must file form GST CMP-04 which is an intimation for withdrawal. You must do this within 7 days of any event that makes your business ineligible for the composition scheme.
Ans. The GST composition scheme turnover limit is Rs 1.5 crores for all states except Himachal Pradesh and the northeastern states. The limit for these states is Rs 75 lakhs.
Ans. Yes, starting from the financial year 2019-2020, service providers can also apply for the composition scheme under GST. Under this scheme, service providers with turnover up to Rs 50 lakhs are eligible to access lower tax rates subject to certain conditions.
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
|Section 194IB||Section 44AA||Section 80E|
|Section 195||Section 80EEA||Section 80DD|
|Section 80CCC||Section 80GG||Section 80 G|
|Section 54F||Section 1941A||Section 10|
|Section 194Q||Section 192||Section 269SS|
|Section 80DDB||Section 44AD||Section 194C|
|Section 194A||Section 194H||Section 80D|
|Section 80C||Section 80C, 24(b), 80EE & 80EEA||Section 234A|
|Section 50C||Section 80C||Section 80EEA|
|Section 194B||Section 194J||Section 206C|
|Section 80CCG||Section 80 EEB||Section 24Q|
|Section 40b||Section 194C||Section 54EC|
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