GST Composition Scheme
Composition Scheme is a simple and easy scheme under GST for taxpayers. Small taxpayers can get rid of tedious GST formalities and pay GST at a fixed rate of turnover. This scheme can be opted by any taxpayer whose turnover is less than Rs. 1.5 crore*. *CBIC has notified the increase to the threshold limit from Rs 1.0 Crore to Rs. 1.5 Crores.
How to opt-in for Composition Scheme:
The eligible registered taxpayers, who want to opt-in for composition scheme for the FY 2021-22, need to file FORM GST CMP-02 application, on or before 31st March, 2021, post login on GST portal. The taxpayers may navigate as follows:
Log-in>Services > Registration > Application to opt for Composition Levy>Filing form GST CMP-02>File application under DSC/EVC
- Once Form GST CMP-02 application is filed, the composition scheme will be available to the taxpayer, w.e.f. 1stApril 2021.
- The taxpayers already opted in for composition scheme earlier are not required to opt in again for FY 2021-2022.
- Taxpayers who were regular taxpayers in previous FY, but are opting-in for this scheme for 2021-22, must file Form GST ITC-03 for reversal of ITC on stocks of inputs, semi-finished goods and finished goods available with them, within 60 days from the effective date of opting in.
Who is eligible for opting-in for Composition Scheme:
Following Normal taxpayers, who don’t want to avail ITC facility, may opt for this scheme:
- having aggregate turnover (at PAN level) upto Rs. 1.5 Crore in the previous FY.
- having aggregate turnover (at PAN level) upto Rs. 75 lakh in the previous FY and who are registered in Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura & Uttarakhand.
- supplying services and/or mixed supplies having aggregate turnover of previous FY upto Rs. 50 lakhs.
Who is not eligible for opting in composition scheme:
- Suppliers of the goods/services who are not liable to pay tax under GST
- Inter-State outward suppliers of goods/services
- Taxpayers supplying goods through e-commerce operators who are required to collect tax under sec 52
- The manufacturers of notified goods like Ice cream and other edible ice, whether or not containing cocoa, tobacco and manufactured tobacco substitutes, Pan Masala & Aerated water
What are the conditions for availing Composition Scheme?
The following conditions must be satisfied in order to opt for composition scheme:
- No Input Tax Credit can be claimed by a dealer opting for this scheme
- The dealer cannot supply goods not taxable under GST such as alcohol.
- The taxpayer has to pay tax at normal rates for transactions under the Reverse Charge Mechanism
- If a taxable person has different segments of businesses (such as textile, electronic accessories, groceries, etc.) under the same PAN, they must register all such businesses under the scheme collectively or opt out of the scheme.
- The taxpayer has to mention the words ‘composition taxable person’ on every notice or signboard displayed prominently at their place of business.
- The taxpayer has to mention the words ‘composition taxable person’ on every bill of supply issued by him.
- As per the CGST (Amendment) Act, 2018, a manufacturer or trader can now also supply services to an extent of ten percent of turnover, or Rs.5 lakhs, whichever is higher. This amendment will be applicable from the 1st of Feb, 2019.
What are the GST rates for a composition dealer?
Following chart explains the rate of tax on turnover applicable for composition dealers :
What are the advantages of Composition Scheme?
The following are the advantages of registering under composition scheme:
- Lesser compliance (returns, maintaining books of record, issuance of invoices)
- Limited tax liability
- High liquidity as taxes are at a lower rate
What are the disadvantages of Composition Scheme?
Let us now see the disadvantages of registering under GST composition scheme:
- A limited territory of business. The dealer is barred from carrying out inter-state transactions
- No Input Tax Credit available to composition dealers
- The taxpayer will not be eligible to supply non-taxable goods under GST such as alcohol and goods through an e-commerce portal.