Everything about the Composition scheme that you need to know

Recently government introduced a Composition scheme to simplify GST filing for small taxpayers by reducing formalities. Let’s discuss the same and understand it in a better way.

What is a Composition scheme?

It is a scheme that allows taxpayers to pay GST at a fixed rate of turnover. Thus the calculation of GST becomes easier. Any taxpayer whose turnover is below 1.5 crores can opt for this scheme. But there is an exception. The limit for northeastern states and Himachal Pradesh is 75 lakh INR.  The turnover of the business is considered on the basis of the PAN number, and a composition dealer can offer services to the extent of 10% of turnover or Rs. 5L (whichever is higher).

Who aren’t eligible to opt for the composition scheme?

• Manufacturers of ice cream, alcohol, and products with tobacco
• Any businessman making inter-state supplies
• A non-resident or casual taxpayer
• Businesses that supply their products or services through e-commerce platforms

Conditions for availing composition scheme

To opt for the Composition scheme, one must satisfy all the following conditions:

• No claim for an input tax credit
• Can’t supply non-taxable goods (under GST) like alcohol
• Pay tax at normal rates for transactions under the Reverse Charge Mechanism
• A taxpayer with multiple segments of businesses under the same PAN should register all businesses under this scheme collectively.
• Mention “composition taxable person” on every notice or signboard (wherever required)

How to raise a bill under the Composition scheme?

A taxpayer registered under the composition scheme cannot issue a tax invoice as they can’t charge tax from their customers and need to pay the same from their end.  He/She can raise a bill of supply and need to mention that “composition taxable person, not eligible to collect tax on supplies ” on the generated bill.

GST rates under Composition scheme

• Manufacturers & traders – 1.0%
• Restaurants that do not serve alcohol- 5.0%
• Others- 6.0%

GST payment by a composition dealer

GST payment will be made from the taxpayer’s pocket and should comprise the following:

• GST on supplies made
• Tax on reverse charge
• Tax on purchase from an unregistered dealer

Returns that need to be filed under the Composition scheme

• Pay tax in a quarterly statement CMP-08 by the 18th of the month after the end of the quarter.
• File return in form GSTR-4 & GSTR-9A (annually)

Advantages of Composition scheme

• No requirement to maintain detailed records
• Lesser compliance
• Limited tax liability
• High liquidity

Disadvantages of Composition scheme

• Can’t expand the business beyond one state
• Can’t claim Input Tax Credit
• Not be eligible to supply non-taxable goods or goods through an e-commerce platform

Last Note

If you want more information on this subject, then you can take an expert’s help by contacting us. Inside Tax is considered the best CA company in Delhi NCR. Our team can help in things like tax filing, planning, and saving. You just have to drop your inquiry or give a call, and your work will be done. You can even contact us for the renewal of your patent and other things.