GST Act provides for a Composition Scheme which is a simple and easy scheme for taxpayers. The small taxpayers can avail this scheme and get rid of tedious GST formalities and pay GST at a fixed rate of turnover. For quick understanding, the salient features of the Composition Scheme are outlined below:
Who Can Avail:
The Composition Scheme is available to small businesses whose aggregate turnover in the preceding financial year does not exceed Rs. 1.5 Crores (Rs. 75 Lakhs in case of Special category States). Further, the Composition Scheme is also available to the service providers if they have an aggregate turnover below Rs. 50 lakhs in the preceding financial year.
Who Cannot Avail:
Following persons are not eligible to avail Composition Scheme:
- Casual taxable person,
- Non-resident taxable person,
- Person supplying non-taxable goods,
- Persons making inter-state outward supplies of goods,
- Persons making any supply of goods through an E-Commerce operator who is required to collect TCS under GST and
- Manufacturer of ice cream and other edible ice (whether or not containing cocoa), pan masala, tobacco and manufactures tobacco substitutes.
GST Rates Under Composition Scheme:
|Type of Business
|Manufacturer and Traders
Important Provisions of the Composition Scheme:
- There is no restriction on procuring goods from inter-state suppliers by taxable persons opting for the Composition Scheme.
- A taxable person opting to pay GST under the Composition Scheme is out of the credit chain. He cannot take GST credit on his input supplies.
- The Composition dealer cannot collect tax paid by him on outward supplies from his customers.
- The registered person making purchases from a person paying tax under the Composition Scheme cannot avail credit.
- Composition dealer shall issue a bill of supply for the outward supplies made by him. He shall mention the words “composition taxable person, not eligible to collect tax on supplies” at the top of the bill of supply issued by him.
- Since Composition dealer is not eligible to make inter-state outward supplies, it cannot make supplies to a SEZ unit.
- The Composition dealer cannot supply exempted goods.
- The Composition dealer has to pay GST at normal rates under the Reverse Charge Mechanism for his purchases from the unregistered dealers and for certain transactions specified under the GST Act.
- 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 Composition Scheme collectively or opt out of the Composition Scheme.
- The option to pay tax under Composition Scheme lapses on the day on which the aggregate turnover of the business exceeds the specified limit (Rs. 1.5 Crores/Rs.75 lakhs/50 lakhs as the case may be) during the financial year. When the taxable person switches over from Composition Scheme to normal scheme, all eligible credits from the date of transition would be allowed.
- In case of a person is having GST registrations in multiple states, the option to pay GST under Composition Scheme will have to be exercised in all States.
Advantages of Composition Scheme:
- Limited Compliance
- Limited Tax Liability
- High liquidity as taxes are at a lower rate
Restrictions Under Composition Scheme:
- No input tax credit available
- No interstate sale is allowed
- Dealing in the exempted goods is not allowed.
The business opting the Composition Scheme is required to file a quarterly returns in Form GSTR-4 by 18th of the month succeeding the quarter. In addition an annual return in Form GSTR-9A is to be filed by 31st December of next financial year.