Composition Scheme comes as a relief for small businessmen as it reduces their compliance burden. Most small businesses do not have the necessary manpower or resources to keep adequate track of their tax filings. For this, reason the government decided to introduce ‘Composition Scheme’ to make it easier for Small Businessmen to comply with G.S.T.
What is Composition Scheme?
Composition Scheme under GST is the simple tax payment and return filing mechanism for small businessmen dealing in Goods. Small Businesses need not to be burdened with compliances under GST and can pay a small percentage of tax on turnover is the turnover is below threshold limit.Small Businesses with annual turnover up to Rs 1.50 Crore can opt for this scheme. The threshold limit of turnover is 1Cr p.a. if the supplier is registered in Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, and Himachal Pradesh.
10 Important Guidelines for Composition Scheme:
- Following persons are not eligible for composition scheme:
- A casual Taxable Person or a non resident taxable person
- Supplier whose aggregate turnover in the preceding financial year crossed Rs 1.50 Cr
- Supplier who has purchased any goods or services from unregistered supplier unless he has paid GST on such goods and services on reverse charge mechanism
- Person engaged in supply of services other than Restaurant services
- Deals in Exempt/Non taxable goods;
- Person making any inter-State outward supplies of goods
- Dealer supplying goods through ecommerce operators
- He is not a manufacturer of such goods as may be notified by the Government on the recommendations of the Council
- Ice cream & other edible ice whether or not containing cocoa
- Pan Masala
- Tobacco and manufactured tobacco substitutes
- Composition scheme would be applicable for all business verticals/ registrations, which are separately held by the person with same PAN. Limit of 75/50 lacs to be seen PAN wise.The rate of tax to be levied under composition scheme is
|Category of person||Rate of Tax|
|Manufacturers, other than manufacturers of such goods as may be notified by the Government (CGST+SGST)||1%|
|Suppliers making supplies referred to in clause (b) of paragraph 6 of Schedule II (Restaurant/Food/Drinks etc)(CGST+SGST)||5%|
|Any other supplier eligible for composition levy under section 10 and these rules (CGST+SGST)||1%|
2.The permission shall stand withdrawn from the day on which Composition dealer aggregate turnover during a financial year exceeds 1.5 Cr.
3.Composition Dealer shall not collect any taxfrom the recipient on supplies made by him.
4.Composition Dealer shall not be entitled to any credit of input tax.
5.There is no restriction on purchasing goods from interstate suppliers
6.A person opting for composition scheme will have to pay taxes on quarterly basis before 18th of the month succeeding the quarter during which the supplies were made.
7.Composition dealer has to file return in Form GSTR- 4 on quarterly basis.
8.Composition dealer cannot issue tax invoice, he shall issue bill of supply for supplies.
9.Composition Dealer shall mention the words “composition taxable person, not eligible to collect tax on supplies” at the top of the bill of supply issued by him;.
10.Composition Dealer shall mention the words “composition taxable person” on every notice or signboard displayed at a prominent place at his principal place of business and at every additional place or places of business.
How to File Composition Scheme?
To Opt-in for Composition Scheme a taxpayer has to file form GST CMP-01 or GST CMP-02 with the government. This can be done by logging into the GST portal. Any dealer wishing to opt-in must provide this information at the beginning of the financial year.
(Form for Composition Scheme)
What are the Advantages of Composition Scheme?
1. Ease of Compliance: Lesser need to maintain records of books of return and invoices.
2. Lesser Tax Liability: The tax rates for businesses under the Composition Scheme are much lower.
3. Higher Liquidity: For a businessman under Composition Scheme, output liability is nominal and there
is no need to consider return filing by a supplier. Hence, there is greater availability of free cash.
4. Local Advantage: A business under Composition Scheme competes with larger entities since its profit margin is higher because of lower tax liability. The advantage conferred on intrastate trade allows such a business to maintain an advantage in local supply.
What are the Disadvantages of Composition Scheme?
1. Limited range of Operations: A business under Composition Scheme is not allowed to carry out inter-state transactions. It also cannot offer import export of services.
2. No Input Tax Credit: For a business under Composition Scheme which deals with other businesses that are not under Composition Scheme there are some issues that need to be kept in mind. For example a buyer registered as a normal taxpayer will not get any credit on tax paid when buying from a person registered under Composition Scheme.
3. No Tax Collection: A taxpayer under Composition Scheme is not allowed to raise tax from a buyer as he is not allowed to raise a tax invoice.
Thus, Composition Scheme can be considered as advantageous for a small taxpayer operating in a fixed location. However, in case one wants to expand business and begin inter-state trading, Composition Tax becomes somewhat limiting.