All That You Must Know About GST Composition Scheme

All That You Must Know About GST Composition Scheme

GST has been a game changer and its implementation has been quite beneficial. And there is more good news for taxpayers under the composition scheme from the next financial year. With an increase in the turnover limit for applicability, the inclusion of service providers and lower tax rates, there are more relaxed rules to look forward to.
 

What is GST Composition Scheme?

GST Composition Scheme is an alternative method to impose a tax under GST for simplification of compliance and lower compliance costs for small taxpayers. Under this scheme, a person or business who opted to pay tax under GST can pay tax at a flat percentage of turnover in each quarter, instead of paying tax on normal rate monthly.

For whom this scheme is applicable? 

GST Composition Scheme is applicable to the following:
  • Traders or manufacturers or person whose taxable business turnover is about Rs.1.5 crore (With exception of Rs. 75 Lakh for NE states).
  • Any service provider whose taxable turnover is about Rs.50 lakh.
Who cannot opt this composition scheme?
  • Businesses with inter-state supplies
  • Ice cream, pan masala, and tobacco manufacturers
  • Businesses that solely rely on e-commerce
Why is it important?

This composition scheme extends significance to the MSME sector, by offering relief on GST filings, procedures and tax rates. As recorded in 1st October 2018 there was about 16 % of registered taxpayers under GST and the percentage is expected to rise with the recent change in threshold from Rs.1 crore to Rs.1.5 crore and with the inclusion of service providers.

As per this scheme, a taxpayer can skip monthly returns and can file for  GSTR-4 on a quarterly basis by 18th of the month once the quarter ends and an annual return in GSTR-9A by December 31st of the next financial year. And once registered under this scheme, one doesn't need to maintain detailed records.

Today, to file GST online is easier, through online portals and service providing firms that can assist you with the procedures. In West Bengal and rest part of India,  wherever you are, with digital reach now things are much easier than prior scenario.

Any drawback?

Yes, it has two drawbacks:
the taxpayers cannot carry out inter-state imports, exports, and transactions.
the buyer in the transaction with any seller registered under this composition scheme won't get the benefit of an input tax credit, which can impact the sales of the former.

Conditions to avail GST Composition Scheme :
  1. A dealer who opts for the scheme, cannot claim Input Tax Credit
  2. The dealer cannot supply GST exempted goods
  3. The taxpayer must pay tax with normal rates on transactions under the Reverse Charge Mechanism
  4. If a person has numerous businesses under the same PAN, he must register all the businesses collectively, under this composition scheme or not choose the scheme.
  5. The taxpayer must mention clearly composition taxable person’ on every signboard or notice board that is displayed at their business place and must clearly mention, ‘composition taxable person’ on every supply bill issued by him.
As per the amendment Act of CGST, 2018, a trader or manufacturer can supply services to an extent of 10% of turnover, or Rs.5 L, whichever is higher. This amendment was applied by 1st of Feb, 2019.

How to opt for the composition scheme?

To opt this scheme, a taxpayer must file GST CMP-02 with the government, through online GST Portal, and follow the instructions mentioned there.

How a dealer, registered under this scheme raise bill?

A composition dealer can't issue a tax invoice as they cannot charge tax from their customers. They have to pay tax from own pocket.
  1. What is the GST rate for a composition dealer?
The following table summarize well:

Business types    CGST  
 SGST    Total
Goods 0.5% 0.5% 1.0%
Restaurants that don't serve alcohol    2.5% 2.5% 5.0%
Other service providers    3.0% 3.0% 6.0%
  1. How to make a GST payment?
GST Payment has to be made out of pocket for the supplies made.
The GST payment includes the following:
  • GST on supplies
  • Tax on reverse charge
  • Tax on purchases from an unregistered dealer
Advantages of Composition Scheme
  • Less hassle like regular returns, maintenance of books of record, issue of invoices
  • Limited tax liabilities
  • High fluidity as the tax rate is lesser
Disadvantages of Composition Scheme
  • A finite business territory. No scope of inter-state trades.
  • Cannot avail Input Tax Credit
  • A taxpayer cannot supply exempted goods or goods via an e-commerce site.
If you already registered under GST composition scheme, then connect our team at Venture Support for GST return procedure in West Bengal and other business related assistance.
Location: Bidhannagar, Kolkata, West Bengal 700091, India

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