Composition Scheme under GST

 

Introduction of composition scheme under GST

 

The composition scheme is an easy and simple scheme for the small taxpayers under GST. It gives benefits to many small businesses by reducing the formalities of GST. Small businesses pay tax at a fixed rate of turnover. This scheme is only for those taxpayers who have a turnover of less than Rs. 1.5 crore. It also reduces the paperwork and tax liability. If taxpayers applied for the composition scheme, they need to file only two returns i.e., Quarterly return (GSTR-4) and annual return (GSTR-9A). In composition, the scheme taxpayer is also liable to pay tax at a fixed rate of turnover. Fixed rate for the composition scheme is 1% to 6%.

 

Eligibility for composition scheme under GST?

 

A taxpayer can be eligible for r composition scheme when he is a regular taxpayer whose turnover is below 1.5 crores. In the case of North-Eastern states and Himachal Pradesh only turnover up to Rs. 75 lakh is allowed. Small manufacturers, traders like fruit and vegetable vendor, shopkeeper, repair shops etc. can avail benefit of the composition scheme.

 

Taxpayers cannot be eligible for the composition scheme if interstate supplies are made, any supply of goods and services are exempt under GST, e-commerce operator, Purchases from an unregistered person, person registered under Input service distributor (ISD), person registered under Tax deducted source (TDS), a taxpayer is a casual dealer and manufacturer of tobacco, ice-cream & pan masala.

 

Composition scheme under GST Turnover limit

 

Composition scheme turnover limit under GST is different for every type of business: -

 

1.      Manufacturers and traders: For newly registered taxpayers’ the turnover limit should not be more than 1.5 crores and for existing taxpayers’ turnover in the previous financial year must not exceed 1.5 crores.

2.     Restaurants not serving alcohol: Turnover should not exceed Rs.1.5 crore.

3.     Service providers: For newly registered taxpayers’ their current financial year turnover should be less than Rs. 50 lakh and for existing taxpayers’ previous financial year turnover should not be more than Rs. 50 Lakh.

For special category states the turnover limit for the composition scheme is Rs. 75 lakhs.

 

Conditions of composition scheme under GST

 

1)      Taxpayer cannot issue tax invoices, he can only issue a bill of supply.

2)    Taxpayer must mention composition taxable person on every notice.

3)    Since the tax invoice is not raised by the taxpayer, he cannot avail input tax credit for outward supplies.

4)    Taxpayer must pay tax at normal rates for transactions under the reverse charge mechanism.

5)    Dealer cannot supply goods or services which are exempt under GST.

6)    A Manufacturer or trader can supply services also to the extent of 10% of total turnover or Rs. 5 lakhs, whichever is higher.

 

Pros of composition scheme under GST

 

      I.         Composition scheme reduces the tax liability with the new rate of tax.

     II.         Composition scheme also reduces the workload of the taxpayers by reducing the paperwork and returns.

   III.         Composition scheme helps in making operations smooth.

  IV.         It helps in maintaining the flow of cash better with the increase in liquidity.

 

Cons of composition scheme under GST

 

      i.         Businesses are not allowed to take the benefit of input tax credit for outward supplies.

     ii.         Taxpayers are not allowed to collect tax from buyers as they are not eligible to raise tax invoices.

   iii.         Businesses are restricted and do not cover interstate transactions.

   iv.         It gives loss to the businesses because some buyers avoid purchases from such taxpayers.

 

Applicable tax rates for composition scheme under GST

 

Tax rates for Composition limit under GST are different for every type of business: -

·       Manufacturers and traders of goods: Tax will be levied at the rate of 0.5% as central GST and 0.5% for the state GST.

·       Restaurants not providing alcohol: Tax will be levied at the rate of 2.5% as central GST and 2.5% for the state GST.

·       Service providers: Tax will be levied at the rate of 3% as central GST and 3% for the state GST.

 

Raising of a bill under the composition scheme

 

A composition dealer cannot charge tax from their customers and cannot raise a tax invoice. They can only raise the bill of supply and it is mandatory for all the composition dealers to mention “composition taxable person, not eligible to collect tax on supplies” on every bill of supply.

 

Applicability of TDS under composition scheme

 

TDS will be applicable at the time of payment under the composition scheme. As per section -51 of CGST Act, 2017 TDS is required to deduct on payment of taxable goods and services to the supplier. TDS to be deducted at the rate of 2% on IGST and 1% on CGST and 1% on SGST.

 

Returns of composition scheme under GST

 

Filing of returns under the GST composition scheme, the taxpayer shall provide a quarterly return named GSTR-4 in an official manner after the end of the quarter up to 18^th of the month and an Annual return named GSTR-9A by 31^st December of the next financial year.