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Composition Scheme under GST is a relief mechanism, especially for small tax payers, wherein they can not only have comparatively less tedious compliance practices to deal with, but also pay GST at a lower, fixed composition tax rate on their turnover. Thus, it is important for businesses to be clear about, what is composition scheme.
As per 32nd GST Council Meeting held on 10th Jan 2019, Service Providers can opt into the Composition Tax Scheme, and the Government has set the threshold turnover for service providers at Rs. 50 lakhs to be eligible for this scheme.
Any taxpayer, whose turnover is less then INR 1.5 Crore, in Rest of India, and less then INR 75 Lakhs in Special Category States (North Eastern States and Himachal Pradesh), can opt for the composition scheme under GST. The point to be noted is that the GST composition scheme limit is based on the turnover of all businesses which are registered with the same PAN, and thus all businesses under the same PAN can either be registered regular dealers or can be composition dealers – not a combination of both.
The following taxable persons cannot opt for the composition scheme under GST:
A business will need to comply with the following rules, as per the composition scheme under GST:
To opt for the composition scheme a taxpayer has to file GST CMP-02 on the GST portal. The composition scheme registration, should be done at the beginning of every financial year, for which a dealer wants to opt for the composition scheme. In other words the GST composition scheme last date for the next year will be 31st of March of the previous financial year.
As per the GST composition scheme rules, a composition dealer cannot issue a GST tax invoice, because he can neither charge tax from his customers, nor claim input tax credit. In other words, the tax needs to be paid out of their own pocket. Thus, as per the rules with regards to the GST composition scheme bill format, a composition dealer needs to issue a Bill of Supply, and in addition the words ‘composition taxable person’ should be clearly mentioned on it, as discussed above.
The GST Composition Scheme Rate is a standard lower rate of tax, which is specified as follows:
|Entity||Composition Tax Rates|
|Manufacturer & Traders of Goods||1%|
|Restaurants not serving alcohol for human consumption||5%|
Service providers are not eligible to apply for composition scheme. However, a taxable person who is supplying goods, and is under the composition levy may provide services up to INR 5 Lakh, as discussed above.
A composition scheme dealer is required to file a quarterly return i.e. Form GSTR-4 by the 18th of the month after the end of the quarter. Also, an annual return i.e. Form GSTR-9A has to be filed by the 31st of December of the next financial year.
Also, it is worth noting, that for the sake of compliance under GST, a composition dealer is not required to maintain detailed records, in order to file returns.
The following are the advantages, small businesses can expect out from registering under the composition scheme:
The following are the disadvantages of composition scheme, which a business will need to keep in mind, before taking the decision to go ahead:
Not eligible to drive business on e-commerce
Payment Declaration Form – GST PMT – 08: Definition, Format and Rules