GST Composition Scheme is a reliable, secure, and convenient scheme for GST registered taxpayers. It aims to simplify and diminish the tiring job of filing tax returns for small taxpayers.
This scheme offers small taxpayers the option of paying GST at a fixed rate of annual turnover. GST registered business entities or taxpayers whose annual turnover is less than INR 1.5 crore can opt for this composition scheme.
For firms registered in North-Eastern states, the limit is now INR 75 lakhs. This scheme has several privileges, which makes it desirable for small taxpayers registered under the GST Scheme.
For example, if you are a small taxpayer, you can file GST returns quarterly. You don’t need heavy book keepings and can also sidestep the obligation to present tax invoices.
Opting for the composition scheme reduces the liability and compliance for you as a taxpayer. Reduced tax liability amounts to a higher rate of liquidity for you annually.
Here Are Eight Things You Should Know About the GST Composition Scheme
Who can avail?
Small manufacturers, taxpayers, and shopkeepers can opt for GST Composition Scheme, provided that the annual turnover of their businesses remains less than INR 1.5 crores.
The GST Composition Scheme limit incorporates turnover for all businesses registered under a single PAN card. Small manufacturers, traders, and taxpayers may be included but are not limited to –
- Restaurants or small eateries
- Repair shops
- Fruit and vegetable vendors
- Service sector unit
- Machine operators and more
Truck operators and trade/manufacturing units can also register for GST Composition Scheme, provided their annual turnover is less than INR 1.5 crores.
Who can not avail?
According to the GST Composition Scheme, the advantages of this scheme are not available for use by the following business entities.
- Inter-state suppliers or traders
- Manufacturers of ice-cream, tobacco, and pan masala
- Businesses who have purchased from a supplier who is not GST registered
- Goods and services suppliers
- Taxpayers who supply goods through an e-commerce chain
- Suppliers of products exempt under the GST Act
- Casual Taxable person or Non-resident taxable person
If you are a taxpayer included in this list, you are not permitted to avail of the benefits of the GST Composition Scheme, no matter what your annual turnover is. Please note that this list is suggestive and is subject to change if the government decides to make amendments to the GST Act.
Applicable GST Rates
GST Composition Scheme allows companies to pay a fixed rate on GST based on their annual turnover. These rates are
- 1% for manufacturers and traders of goods
- 5% for restaurants and eateries
- 6% for other service providers
Note that restaurants serving alcohol cannot apply for GST Composition Scheme.
Conditions for availing the scheme
There are a few prerequisites set under the GST Act, which need to be obeyed by the taxpayers. Only by complying with these rules and regulations can they be eligible for GST Composition schemes.
You can not be involved in the sales of GST exempted goods. Live animals, dry fruits, meat, eggs, and all such things, come under the list of exempted goods.
Any trader selling or buying these goods is not eligible for the composition scheme. You can not claim the input tax credit if you have listed yourself under the scheme. You will have to pay for the GST of your purchases from your pocket.
You must register different segments of your business under the same PAN Card or opt-out of the scheme. You have to display a sign saying ‘composition taxable person’ on every signboard posted at the place of your business.
You also need to mention ‘composition taxable person’ on every bill of supply that you issue. You can furnish services to the extent of 10 percent of your annual turnover or INR 5 lakhs, whichever is higher.
How to opt for the composition scheme?
If you want to opt for the GST Composition Scheme, the government should be intimidated for the same. You can do this by filling GST CMP forms. There are two types of such arrangements.
As a taxpayer, you need to file the GST CMP-01 at the outset of every financial year if you want to opt for the composition scheme in that year. You will be automatically opted out if you miss the deadline for filing the form.
The second GST CMP-02 form is for taxpayers who want to opt for the GST Composition scheme in the middle of the financial year. Both of these forms are filled online on the GSTN portal, and the process is the same.
What tax returns can a composition dealer file?
Composition dealers do not need to file tax returns monthly; instead, they can enrol for quarterly tax returns and a single annual tax return.
You need to file GSTR-4 quarterly and an annual return GSTR-9A if you are a composition trader.
What bills can a composition trader raise?
A composition trader can not issue a tax invoice. You cannot charge your customers. You have to issue a ‘Bill of Supply.’ On top of that bill, you should mention ‘composition taxable person, not eligible to collect tax on supplies.’
You have to pay for your GST expenses out of your pocket. Non-composition traders can file for an input tax return, through which the money they spent as GST on buying supplies will be credited back to them.
Composition dealers can not get involved in inter-state trades. No inter-state trade means a reduced area of business and little scope to expand the business.
Further, a composition trader cannot sell exempted items in the GST list. For example, if you are selling cashew nut, you can not opt for the GST Composition Scheme.
GST Composition Scheme is a very profitable scheme under the GST Act. Everything has its pros and cons, and so does this scheme. However, this scheme can prove to be a lot valuable to small taxpayers.
They don’t need to maintain such detailed accounts of their bills and invoices. They can operate with minimum compliance with the GST Act. Also, they have an alternative to pay a minimal amount as tax returns.
In short, this is a brilliant scheme that the government has come up with, and it will help a lot of small traders and people in the business.