Composition Scheme in GST: Updated with 23rd meeting of GST Council

Taxation

Composition Scheme in GST: Updated with 23rd meeting of GST Council

Composition Scheme is introduced to give relief to small taxpayer i.e. taxpayer having limited value of aggregate turnover. It is very difficult for small taxpayer to comply with complete procedure established by the law. They may have to incur higher percentage of their earnings for compliance of tax procedures. Hence easy procedures is laid done by the law maker for such small taxpayers which is named as “Composition Scheme”. This scheme is optional for small taxpayers. Under composition scheme tax is payable at a fixed percentage on turnover.

Threshold Limit for Composition Scheme

Threshold limit of aggregate turnover is increased to 1.5 crore from earlier limit of Rs. 1 crore as per decision taken in 23rd meeting of GST council held on 10th November. Hence as of now, A taxpayer whose turnover is up to Rs 1.5 crore can opt for Composition Scheme. In case of North-Eastern states and Himachal Pradesh, the limit is now Rs 75 lakh.

How to opt for Composition Scheme

A taxpayer who want to opt for composition scheme, has to give intimation in form GST CMP-01 or 02 at the beginning of every financial year. For 2017-18, this intimation was required to be filed before 16th August 2017. This Scheme will be applicable from the 1st day of the next month of submitting intimation. If a registered taxpayer submits the form GST CMP-01 on 19th Oct then composition scheme will apply from 1st Nov.

Conditions for Composition Scheme

Following conditions must be satisfied by person opting for composition scheme:-

  • No Input Tax Credit can be claimed by a dealer opting for composition scheme
  • Composition dealers can not charge GST from their customer. They have to deposit GST from their pocket.
  • Composition dealers can not issue ‘Tax Invoice’.
  • The taxpayer cannot make any inter-state supply of goods.
  • The dealer can supply GST exempted goods.
  • Taxpayer has to pay tax at normal rates for transactions under Reverse Charge Mechanism
  • 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.
  • Those supplying goods can provide services of upto Rs. 5 lakh.

Who can not opt for composition Scheme

The following taxpayers cannot opt for this scheme:

  • Supplier of services other than restaurant related services.
  • Taxpayer having aggregate turnover above threshold limit.
  • Businesses which supply goods through an e-commerce operator.
  • A taxpayer making inter-state supply of goods.
  • Manufacturer of ice cream, pan masala, or tobacco.
  • Casual taxable person or a non-resident taxable person.
  • Businesses which supply goods through an e-commerce operator.

GST rate for composition Scheme

As we know Composition dealer is not allowed to do inter-state business. Hence GST payable by such taxpayer is CGST and SGST, rate is which is given below:-
 
a) 2% of Turnover in case of a manufacturer (1% CGST and 1% SGST) 
b)  5% of the turnover in case of persons engaged in making supply of food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption). For e.g. Restaurants or Hotels.(2.5% CGST and 2.5% SGST) 
c)  1 % of the turnover in case of traders.(0.5% CGST and 0.5% SGST)
For the purpose of calculation of tax, turnover of exempted supplies is excluded.

Return for taxpayer of Composition Scheme

A taxpayer under composition scheme is required to file quarterly return in form GSTR-4 and annual return in form GSTR-9A. GSTR-4 is required to be filed before 18th the month after the end of respective quarter. GSTR-9A is required to be filed before 31st December of next financial year.

For the June to Sept.-17 quarter (quarter ending on 30-09-2017), GSTR-4 was required to be filed before 18th October which is extended to 24th December 2017  as per decision taken in 23rd meeting of GST Council held on 10th November.

Advantages of Composition Scheme

Opting for composition scheme is advantageous in following manner:-

  1. Required to file only 5 return in place of 37 return in a year.
  2. Less percentage of tax payable.
  3. Competitive benefit because GST is not charged in invoice, Hence can afford to reduce prices.
  4. Less procedural compliance.
  5. Dealer registered under composition scheme is not required to maintain detailed records.

Disadvantages of Composition Scheme

Opting for composition scheme have following disadvantages:-

  1. Taxpayer can not claim Input tax credit.
  2. The taxpayer will not be eligible to supply goods through an e-commerce portal
  3. The taxpayer cannot make any inter-state supply of goods.

Formats for Composition Scheme

Form No.  Description
GST CMP-01 Intimation to pay tax under section 10 (composition levy) (Only for persons registered under the existing law migrating on the appointed day)
GST CMP-02 Intimation to pay tax under section 10 (composition levy) (For persons registered under the Act)
GST CMP-03 Intimation of details of stock on date of opting for composition levy (Only for persons registered under the existing law migrating on the appointed day)
GST CMP-04 Intimation/Application for withdrawal from composition Levy
GST CMP-05 Notice for denial of option to pay tax under section 10
GST CMP-06 Reply to the notice to show cause
GST CMP-07 Order for acceptance / rejection of reply to show cause notice

Financial Funda