A note on composition scheme in GST

A note on composition scheme inGST

Composition Scheme (Not Applicable in following cases)

  • Taxpayer supplying exempt supplies.
  • Taxpayer having Interstate 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.

Conditions for availing Composition Scheme under GST

  • No Input Tax Credit can be claimed by a dealer opting for composition scheme.
  • The taxpayer cannot make any inter-state supply of goods.
  • The dealer cannot supply GST exempted goods.
  • Taxpayer has to pay tax at normal rates for transactions under Reverse Charge Mechanism.
  • If a taxable person has different segments of businesses (such as textile, electronic accessories, groceries, etc.) under the same PAN, they must register all such businesses under the scheme collectively or opt out of the scheme.
  • 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 up to INR. 5 lakhs.

How can a taxpayer opt for composition scheme under GST?

To opt for composition, scheme a taxpayer has to file GST CMP-02. This can be done online by logging into the GST portal. This intimation should be given at the beginning of every Financial Year by a dealer wanting to opt for Composition Scheme.


How Should a Composition Dealer raise bill?

A composition dealer cannot issue tax invoice. This is because a composition dealer cannot charge tax from their customers. They need to pay tax out of their own pocket (Profit). Hence, the dealer has to issue a Bill of Supply. The dealer should also mention “composition taxable person, not eligible to collect tax on supplies” at the top of the Bill of Supply.


Returns required to be filled by a Composition Dealer

A dealer is required to file a quarterly return GSTR-4 by 18th of the month after the end of the quarter. Also, an annual return GSTR-9A has to be filed by 31st December of next financial year. Also, note that a dealer registered under composition scheme is not required to maintain detailed records.


Advantages of Composition Scheme under GST

  • Lesser compliance like lesser returns, maintaining books of record, issuance of invoices.
  • Limited tax liability.
  • High liquidity as taxes are at a lower rate.

Disadvantages of Composition Scheme under GST

  • A limited territory of business. The dealer is barred from carrying out inter-state transactions.
  • No Input Tax Credit available to composition dealers. Hence, Amount of GST will be paid out of pocket of businessman.
  • The taxpayer will not be eligible to supply exempt goods or goods through an e-commerce portal.


GST Rates & turnover limit under GST Composition Scheme

Manufacturer & Trader  1% of Turnover
Restaurants not serving Alcohol 5% of Turnover

North Eastern State and Himachal Pradesh: INR 75,00,000/-

In other States: INR 1,00,00,000/-

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