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What is GST Composition Scheme?

gst-composition-scheme

The implementation of the Goods and Services Tax (GST) has posed a massive challenge for the Small and Medium Enterprises (SMEs). These enterprises need to cope up with endless compliances under the GST law. And, while dealing with the compliances, the SMEs lose sight of their core business processes. Hence, the Government came up with GST Composition Scheme that helped in easing out the burden of the SMEs.

What is the Composition Scheme all about?

Under the composition scheme, the businesses whose annual turnover is up to 1.5 crores INR need to pay a certain percentage of their turnover as tax under GST. The turnover limit for the North-Eastern states and Himachal Pradesh is 75 lakhs INR. This saves them from the burden of paying monthly taxes as the tax under composition scheme has to be paid at a minimum rate on a quarterly basis.

However, if the turnover exceeds the prescribed limit, then the business has to get itself registered under the regular GST scheme.

While calculating the turnover, the turnover of all the businesses registered with the same PAN is taken into consideration.

Who is not eligible for Composition Scheme?

  1. Taxpayer who deals in exempt supplies.
  2. Supplier of services (except for restaurant related services).
  3. Manufacturer of ice cream, pan masala, or tobacco.
  4. Casual taxable person or a non-resident taxable person.
  5. Businesses supplying goods through an e-commerce operator.

What are the conditions to be fulfilled for Composition Scheme?

  1. Input Tax Credit cannot be claimed under composition scheme.
  2. The taxpayer can only make an intra-state supply of goods.
  3. If a taxable person has different segments of businesses registered under the same PAN, he must register all the segments under the scheme collectively.
  4. The taxpayer has to mention the words ‘composition taxable person’ on every notice or signboard displayed prominently at their place of business & on every bill of supply issued by him.
  5. The taxpayer cannot deal in GST exempted goods.
  6. Taxpayer has to pay tax at normal rates under Reverse Charge Mechanism.
  7. Those supplying goods can provide services of up to 5 lakhs INR.

How can a dealer register himself for composition scheme?

The dealer who is willing to opt for composition scheme has to bring the same in the notice of the Government in the beginning of the financial year. In order to be a part of the composition scheme, a dealer needs to file GST CMP-02 with the Government. He has to login to the GST portal to get started with the process.

Which return is to be filed under Composition Scheme?

The return that is to be filed under the composition scheme is GSTR-4 by 18th of the month after the end of the quarter. Another return i.e. GSTR-9A is an annual return that is to be filed by 31st December of the next financial year.

What are the GST rates applicable for composition scheme?

GST Rates for Composition Scheme

Business

CGST

SGST

Total

Manufacturers & Traders (For Goods)

0.5%

0.5%

1.0%

Restaurants (Not serving alcohol)

2.5%

2.5%

5%

Important Note: The Service Providers are not eligible for Composition Scheme.

Some FAQs on Composition Scheme…

  1. Can a composition dealer collect tax from customers?

No, a composition dealer cannot collect tax from his customers. He is supposed to pay the same on his own.

  1. Is a composition dealer eligible to avail Input Tax Credit (ITC)?

A composition dealer cannot avail Input Tax Credit on purchases under GST.

  1. If a business has several branches, will composition scheme apply to each branch separately?

No. The composition scheme will not be applicable to each branch separately.

  1. Can an inter-state dealer opt for composition scheme?

An inter-state dealer cannot opt for composition scheme because it is only meant for intra-state supply of goods.

  1. Can a dealer opt for composition scheme anytime during the year?

No, a composition dealer cannot opt for composition scheme anytime during the year. He has to make a declaration on the GST portal before the beginning of every financial year.

  1. Is a composition dealer supposed to maintain detailed records?

A composition dealer need not maintain detailed records as a normal taxpayer is required to maintain.

  1. How does a composition dealer raise bill?

A composition dealer can issue a Bill of Supply. He should mention Composition Taxable Person, not eligible to collect tax on supplies” at the top of the Bill of Supply.

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