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Composition Scheme of GST

Jul 10, 2017

GST has been implemented in India which has brought new regime of business compliance in India. The government has introduced Composition Scheme to simplify the compliances for the start-ups and Small and Medium Enterprises (SMEs) under GST. The compliances are more than earlier under GST so there are some exemptions given under GST to the small businessman.

Under Composition Scheme of GST, a taxpayer will be required to file summarized returns on a quarterly basis, instead of three monthly returns as applicable for normal business. This scheme can be availed by that taxpayer who have an annual turnover of less than 75 lakh and do not do interstate supplies. Also under the composition scheme the taxpayers are not required to maintain detailed records as required in the case of normal taxpayers.

Eligible for Composition Scheme :

This scheme can be opted by following tax payers:

  • Manufacturers
  • Restaurants
  • Other suppliers of goods

The turnover should be below Rs 75 lakh. This limit is Rs 50 lakh for states like Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, and Himachal Pradesh. Following are the one who cannot opt for composition scheme:

  • Service providers other than restaurants.
  • Any business that makes inter-state supplies
  • Any business registered on an e-commerce platform
  • Manufacturers of ice cream, edible ice, pan masala, tobacco, and tobacco substitutes.
  • A person registering as a non-resident taxable person. This is someone who wants to do business for a short period and is based out of India with no office in India. Registration is valid for 90 days.
  • A person registering as a casual taxable person. This is someone who seeks a temporary registration in a state where he has no office. Registration is valid for 90 days.

But this scheme is not available to service provider other than restaurants. If their turnover exceeds Rs 20 lakh then the service providers have to apply for GST Registration and comply with regular GST Return Filings monthly basis. The threshold limit will not apply when they are engaged in interstate supplies or are listed on an e-commerce website.

Rates of tax for the scheme

These are the following rates for tax (an aggregate of CGST & SGST Rates under the Composition Scheme:

S. No. Taxpayer CGST Rate SGST Rate Total Rate
1. Manufacturers 1% 1% 2%
2. Suppliers 2.5% 2.5% 5%
3. Other suppliers 0.5% 0.5% 1%

 

One can migrate from existing Tax scheme to GST Composition Scheme or if they opted for VAT composition scheme then you will still be eligible for registering as regular GST Taxpayer. One can file their returns under the composition scheme in the Form GSTR-4 on a quarterly basis and an annual return in form GSTR-9A.

One has to fulfil the following conditions to avail credit on input at time of transition from composition scheme to normal scheme:

  • Such inputs or goods are intended to be used for making taxable supplies under GST law.
  • Taxpayer was eligible for CENVAT Credit on such goods under the previous regime, however, couldn’t claim it being under composition scheme.
  • Such goods are eligible for input tax credit under GST regime.
  • The taxpayer has legal evidence of input tax paid on such goods.
  • Such invoices were issued within a period of 12 months from GST applicable date.

Restrictions on the Composition Scheme
There are some restrictions on the taxpayer which opt for the composition scheme, some of them are:

  • They cannot claim for the input tax credit. If composition dealers buy goods on which they pay GST, they cannot set up taxes they pay on inputs from their final tax liability.
  • They cannot charge GST on the invoice to customers. They are not supposed to collect any tax on sales. The tax they pay is like a turnover tax; it goes from their own pocket.
  • They will not issue a tax invoice, rather a ‘bill of supply’. This has nearly as many fields as a tax invoice and is not much different, except that it has “composition taxable person, not eligible to collect tax on supplies” mentioned on the bill of supply.
  • The business owner must also mention “composition taxable person” on his signboard displayed at his place of business.
  • The day they cross the turnover threshold or make an inter-state sale, their composition scheme registration stops being effective from that day. And they must start paying regular GST taxes from such date. They also must inform the tax department within the next seven days; there is a specific GST form for this which can be filed online.
  • A word of caution for those who may apply incorrectly or fail to seek regular registration when they no longer meet the conditions strict penalties apply.

Conclusion

The composition scheme is for some benefit for the small retailers who are operating in a single state only. It may appear to be restrictive to some taxpayers but will ultimately benefit them as it has been introduced for their benefit only.

Tags: GST, GST Bill, GST Council, GST Impact, GST Implementation, GST India, GST Law, GST Model, GST News, GST Rates, GST Reform, GST Rules, GST Tax, Impact of GST, Scheme of GST

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