Who can opt for Composition Scheme?
What are the advantages of Composition Scheme?
Firstly, opting for composition scheme reduces the compliances burden for the small taxpayers. This is so because under the Composition Scheme, the taxpayer has to file just one return every quarter in Form CMP-08 and an Annual Return in Form GSTR-4. On the other hand, the regular taxpayers have to file monthly returns in the Form GSTR-1 and GSTR-3B as well as one annual return in the form of GSTR-9.
Secondly, through the composition scheme, the taxpayers have to pay GST at a fixed rate of turnover instead of regular GST rates that apply to normal taxpayers.
Lastly, opting for the composition scheme also reduces the paperwork since the taxpayers are not required to maintain books of accounts and have a limited tax liability.
Who cannot opt for Composition Scheme?
– Manufacturer of ice cream, pan masala or tobacco
– Any person making inter-state supplies
– A casual taxable person or a non-resident taxable person
Rules related to the Composition Scheme
– Turnover limit: The persons opting for the composition scheme should not have a turnover exceeding Rs. 1.5 crores (For North-Eastern and Himachal Pradesh State, this limit is Rs. 75 lacs)
– Nature of Business: The scheme is available for supplier of goods or services except the persons mentioned above (under the heading: Who cannot opt for composition scheme?)
– Non-supply of non-GST goods: The taxpayer cannot supply goods which are not taxable under GST such as alcohol.
– Input Tax Credit: Persons opting for composition scheme cannot claim Input Tax Credit on their purchases as well as expenses.
– Fixed GST Rate: Under the composition scheme, there is a fixed GST rate on the basis of turnover instead of the normal rates.
– Quarterly Payment: The payment of GST liability under the composition scheme are to be made on a quarterly basis.
– Reverse Charge Mechanism: The taxpayer has to pay GST at normal rates for transactions under the Reverse Charge Mechanism.
– Different Segments of Businesses: If the taxpayers have different segment of businesses such as textile, electronics, groceries etc under the same PAN, then to opt for the composition scheme, he must register all the businesses collectively under this scheme.
– Mentioning of words: The taxpayer opting for the composition taxation scheme has to clearly mention the words ‘Composition Taxable Person’ on every notice or signboard displayed prominently at the place of business as well as on every bill issued by him
– Voluntary Opt-In: The taxpayers can voluntarily opt for the Composition Scheme provided they fulfill all the above mentioned criteria.
How to opt for the Scheme?
GST Rates under the Composition Scheme
|
Type of Business
|
CGST
|
SGST
|
Total
|
|
Manufacturers & Traders (Goods)
|
0.5%
|
0.5%
|
1%
|
|
Restaurants not serving alcohol
|
2.5%
|
2.5%
|
5%
|
|
Other service providers
|
3%
|
3%
|
6%
|
Situations in which Composition Scheme can be withdrawn
– Surpasses Threshold Limit: If a taxpayer under the composition scheme surpasses the threshold limit of Rs. 1.5 crores / Rs. 75 lacs, then he will have to withdraw from the Composition Scheme.
– Non-compliance: If the taxpayer fails to comply with the conditions and rules specified under the composition scheme, such as not paying tax at the prescribed rate, not filing returns within the due dates, or violating any other provisions, the tax authorities may withdraw the composition scheme.
– Voluntary Withdrawal: Taxpayers under the composition scheme have the option to voluntarily withdraw from the scheme if they no longer wish to avail its benefits. This could be due to reasons such as expansion of business operations, desire to claim input tax credit, or other business considerations.
– Change in Business Nature: If there is a significant change in the nature of the taxpayer’s business, such as a change in the type of goods or services supplied, which makes them ineligible for the composition scheme, they may be required to withdraw from the scheme.
– Misrepresentation of Facts: If the taxpayer has provided incorrect or misleading information while opting for the composition scheme, the tax authorities may withdraw the scheme and take appropriate action.
– Cancellation of GST Registration: If the taxpayer’s GST registration is cancelled for any reason, they are automatically withdrawn from the composition scheme.
It’s essential for taxpayers availing the composition scheme to adhere to the eligibility criteria and comply with the rules and regulations to avoid withdrawal and potential penalties or legal consequences.