Composition Scheme under GST

Composition scheme under GST
Ø Introduction:

GST refers to Good & Service Tax which is an Indirect tax levied on the supply of goods & services. Basically, GST was introduced to subsume all the taxes such as Sales Tax, Excise Duty, & Service Tax & to form a one Single Tax regime.

 

Ø What is the GST Composition Scheme?

The GST composition scheme is especially for the small businesses falling under the unorganized sector with having an average turnover less than Rs. 1.5 crore (< 75 lacs for the North Eastern States). The businesses registered under this scheme are called as compounding dealers/vendors & these dealers/vendors can pay tax at a lower rate. And having fewer return to file as compared to normal taxpayers. Ø Who can opt for Composition Scheme? The taxpayers who can opt for such schemes are as follows: 1. The businesses having a turnover below Rs.1.5 cr can opt for composition scheme (>
75 lacs for the North Eastern States).
2. Turnover of all the businesses registered with the same PAN number should be taken
into consideration to calculate turnover.

 

Ø Who cannot opt for composition scheme?

The taxpayers who cannot opt for such schemes are as follows:

1. Taxpayer supplying exempted supplies.
2. Supplier of services except for restaurant related services.
3. Manufacturer of ice cream or tobacco products.
4. An informal taxable person or a non-resident taxable person.
5. Businesses that supply through an e-commerce operator.

 

Ø What are the stipulations for availing composition scheme?

The Stipulations in order to avail such scheme are as follows:

1. The dealer or vendor cannot claim Input Tax Credit
2. The dealers cannot supply GST exempted goods.
3. The taxpayers cannot make any interstate supply of goods.
4. Taxpayers have to pay taxes at normal rates of transactions under Reverse Charge
Mechanism.
5. If taxpayers have different types of business such as textiles, electronic, groceries.
Etc. under the same PAN, and then they must register all such businesses under the scheme communally.
6. The taxpayer has to mention the words ‘Composition Taxable Person’ on every notice
displayed at their place of business. And also they have to mention the same on every
Bill of Supply issued by him.

 

Ø How to opt for a composition scheme?

1. The Business owners who want to apply for such a scheme, they should file the
application with the tax department at the beginning of every financial year (FY)
by the dealer or vendor who wants to opt for such a scheme.
2. CMP-01 is the Form which needs to be filed by the taxpayer who wants to opt for
Composition Scheme. If this is not done as per the specified date then the dealers will
not be allowed to collect tax or issue bills of supply.
3. A taxpayer who wants to opt for such a scheme for FY or during the middle of the FY
has to inform the government about the same. This can be done by filing a form GST
CMP-02.
4. If CMP-02 is filed in the middle of the FY, then the rules of such schemes are
applicable from the month immediately followed by the month in which CMP-02 is
filed.

 

Ø Why Dealers have to raise Bills of Supply under composition schemes?

Prior to GST, a dealer used to issue a tax invoice but now they cannot issue such invoices. Because in the composition scheme, a dealer cannot charge a tax from his clients. They need to bear the charges on their own.
Therefore, the dealers or vendors have to issue a Bills of Supply.

NOTE: The dealers or vendors should mention “Composition Taxable Person” on
each & every bill of supply.

 

Ø What are the GST rates under Composition Scheme?

The composition schemes rates are different based on the types of business which are as follows:

1. For traders & manufacturers, it is 1 %. ( CGST+SGST)
2. For the restaurant sector, it is 5%. However such it is not applicable for the restaurant
serving alcohol.

 

Ø How composition dealers can make GST payments?

The payment for the GST has to be made out of pocket for the supplies made by the composition dealers.

The GST payment to be made by composition dealers normally consist of:

1. GST on supplies made.
2. Tax on reverse charge.
3. Tax on purchase from unregistered dealers.

 

Ø What returns are to be filed by composition dealers?

A Composition Dealer is required to file GSTR-4 by the 18th of the month after the end of the quarter. Also, require to file an annual return GSTR-9A by 31st of December of the next FY.

 

Ø What are the Merits of the composition Scheme?

The merits of composition scheme are as follows:
1. Limited Tax liability
2. High liquidity taxes that too at lower rates.
3. Lesser compliances such as returns, marinating books of record, issuances of invoice.

 

Ø What are the demerits of the composition scheme?

Following are the demerits of such schemes:

1. No Input Credit available
2. The taxpayer will not be eligible to supply exempted goods
3. They cannot carry out interstate business transactions.

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