GST Composition Scheme Rules

  1. 1. GST Composition Scheme Rules
  2. 2. Opting for GST Composition Scheme
    1. For persons already registered under pre-GST regime
    2. For persons who applied for fresh registration under GST
    3. For persons who registered as Regular Dealers under GST and switching to GST Composition Scheme
  3. 3. Effective Date to pay tax under GST Composition Scheme
  4. 4. GST Composition Scheme Eligibility
  5. 5. GST Composition Rules
  6. 6. GST Composition Return Forms

1. GST Composition Scheme Rules

Composition Scheme under GST is a scheme which offers comparatively lesser compliance activity, as well as a flat rate GST tax rate for small businesses. Thus, it is important for businesses to be clear about, what is composition scheme under GST.

2. Opting for GST Composition Scheme

For persons already registered under pre-GST regime

Any person being granted registration on a provisional basis (i.e. the person was registered under VAT, Service Tax or Central Excise etc.) and who opts for the GST Composition Scheme, shall file an intimation in Form GST CMP-01, duly signed, before or within 30 days of the appointed date. Form GST CMP- 03 must also be filed within 60 days of the exercise of option, mentioning details of stock and containing details of inward supply of goods received from unregistered persons held by him on the date preceding the day of exercise of the option. As per the latest updates, the due date to file form GST CMP-03 is extended till 31st January 2018.

For persons who applied for fresh registration under GST

For fresh registrations under the GST Composition Scheme, an intimation in Form GST REG- 01 must be filed.

For persons who registered as Regular Dealers under GST and switching to GST Composition Scheme

Every person who registered under GST as a regular dealer, but then opted to pay taxes under the GST Composition Scheme, must provide an intimation in Form GST CMP – 02, communicating his wish to exercise this option, and also, furnish a statement in Form GST ITC-3, containing details of ITC relating to inputs lying in stock, inputs contained in semi-finished or finished goods - within 60 days of commencement of the relevant financial year. However, as per the latest updates, Form GST ITC-03 must be submitted within 90 days from the date of start of the GST composition levy. Also, it is essential to file GST TRAN-1 before Form GST ITC-03 is furnished.

Alternatively, in case a dealer wants to move from composition to regular, he needs to:

  • File an intimation in Form GST CMP-04
  • Furnish stock statement in Form GST ITC-01

3. Effective Date to pay tax under GST Composition Scheme

The option to pay tax under the GST Composition Scheme shall be effective as follows:

  • For persons already registered under pre-GST regime: Appointed day i.e. 1st July, 2017
  • For persons who applied for fresh registration under GST: Date of grant of registration
  • For persons who registered as Regular Dealers under GST and switching to GST Composition Scheme:
  • The GST composition scheme will be applicable from the 1st day of the next month
  • If the registered person opts to pay tax under GST composition scheme effect from the first day of a month which is not the first month of a quarter, then he will file Form GSTR-4 return for that quarter. For previous quarters i.e. before GST composition scheme, he must file the normal returns

4. GST Composition Scheme Eligibility

The following taxable persons cannot opt for the composition scheme under GST:

  • Taxpayer supplying Exempt supplies
  • Supplier of services other than restaurant related services
  • 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

5. GST Composition Rules

A business will need to comply with the following GST composition rules:

  • No Input Tax Credit can be claimed
  • No Inter-state supply of goods can be done
  • No GST exempted goods can be supplied
  • Tax need to be paid at normal GST rates for transactions under Reverse Charge Mechanism
  • If a taxable person has multiple segments of businesses under the same PAN, they must all collectively opt for or opt out of the composition scheme
  • The words 'composition taxable person' must be displayed prominently on every notice or signboard at the place of business
  • As per the GST composition scheme bill format, the words 'composition taxable person' must be displayed prominently on every bill of supply which is issued
  • Services worth up to INR 5 Lakh can be supplied under the scheme, by a taxable person who is also supplying goods

6. GST Composition Return Forms

A GST composition scheme dealer is required to file a quarterly composition return form i.e. Form GSTR-4 by the 18th of the month after the end of the quarter. Also, an annual composition return form i.e. Form GSTR-9A has to be filed by the 31st of December of the next financial year. All these forms must be duly signed and filed electronically on Common Portal, either directly or through a Facilitation Centre notified by the Commissioner. As per the latest notifications, the late fees for failure to furnish returns in Form GSTR-4 by the composition scheme last date have been waived off to the extent of the amount in excess INR 50 per day for every day the failure continues. In case of the filing of NIL Returns in Form GSTR-4, the late fees for failure to furnish return by the composition scheme last date, have been waived off to the extent of the amount in excess of INR 20 per day for every day the failure continues.

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