Since the implementation of GST by the Indian government, understanding all its regulations and implementations has been a daunting task for the majority of the population. One such implementation is the Composition Scheme.
The composition Scheme under gst is a secure scheme under GST regarding taxpayers. Small taxpayers can be free of GST formalities and pay GST at a fixed rate of turnover. Any taxpayer with turnover less than Rs. 1.5 crore is eligible for this scheme.
Questions and Solutions on the Composition Scheme
Here we shall discuss some of the frequently asked queries regarding the Composition Scheme and all that you need to know –
- Who are/aren’t eligible for the Composition Scheme?
A taxpayer with a turnover below Rs 1.5 crore can avail the Composition Scheme. In the case of North-Eastern states and Himachal Pradesh, the revised limit is Rs 75 lakh.
As per the CGST (Amendment) Act, 2018, a composition dealer is eligible to supply services to the extent of ten percent of turnover, or Rs.5 lakhs.
You can opt into the composition scheme for the year 2020-21 in form CMP-02 before 30th June 2020.
It is applicable for both taxpayers registered under section 10 from the CGST Act, and the taxpayers opting for the scheme notified via CGST (Rate) notification no. 2/2019 dated 7th March 2019 (Source).
The below-mentioned population cannot avail the Composition Scheme –
- Ice-cream, pan masala, or tobacco manufacturers
- Inter-state suppliers
- A casual taxable or a non-resident taxable payer
- Businesses using an e-commerce operator to supply goods
- What are the conditions applicable to avail the Composition Scheme?
To opt for the Composition Scheme, the following conditions are applicable –
- A dealer cannot claim Input Tax Credit while opting for composition scheme.
- The dealer cannot supply GST exempted goods.
- Tax rates are standard for the taxpayer for transactions under the Reverse Charge Mechanism.
- If a taxable person has numerous other segments of businesses under the same PAN, then all of them must be registered under the scheme.
- The taxpayer needs to mention ”composition taxable person” on every signboard displayed prominently at their workplace.
- The taxpayer needs to mention ”composition taxable person” on every supply bill issued.
- How does an eligible taxpayer avail the Composition Scheme?
For a taxpayer to opt for the composition scheme, he/she has to file GST CMP-02 with the government. This process is conducted online by logging into the GST Portal.
This intimation needs to be delivered at the commencement of every Financial Year by a taxpayer.
Khatabook allows you to maintain your personal as well as business ledgers and assists in building utility solutions. You can install the Khatabook app to find out how to register for gst and get the answers conveniently.
- How does a compensation dealer issue bill?
A composition dealer cannot issue a tax invoice as a composition dealer cannot charge tax from their customers. The tax paid is from their expenditures.
The dealer is thus required to issue a Bill of Supply.
The dealer needs to mention “composition taxable person, not eligible to collect tax on supplies” on top of the Bill of Supply.
- How can a composition dealer make GST payments?
GST Payments must be undertaken from your expenditures for the supplies made.
The GST payment as made by a composition dealer comprises of –
- GST on supplies made.
- Tax on reverse charge.
- Tax on purchase from an unregistered dealer
- What are the pros and cons of the Composition Scheme?
Registration under composition scheme offers the following advantages –
- Low compliance (returns, maintenance of books of record, invoice issuance)
- Limited tax liability
- Increased liquidity as the taxes become low
The GST composition scheme also has some disadvantages to offer –
- Restricted business territory because the dealer cannot conduct inter-state transactions
- No Input Tax Credit provided to composition dealers
- You cannot supply exempt goods through an e-commerce portal.
- What returns need to be filed by a composition dealer?
A dealer needs to file a quarterly return GSTR-4 by the 18th of the month at the end of the quarter.
An annual return GSTR-9A also needs to be filed by 31st December of the next financial year (Source).
- How to calculate the payable tax amount?
The dealer is liable to pay tax under reverse charge on individual purchases, dealings from an unregistered dealer, and import of services.
The net payable GST becomes –
- Tax on supplies including net of advance and goods returned
- Tax on B2B transactions where there is an imposition of Reverse Charge
- Tax on Import of Services
- Tax on B2B purchases from Unregistered suppliers
The rate of tax on transactions under Reverse Charge is at regular rates (the rates applicable to the supplies) if they have been purchased from an unregistered dealer.
Rates under Composition Scheme are eligible to be applied only to the sales of a composition dealer.
The Composition Scheme can be beneficial for the people if they have the necessary intellect on the topic.
The scheme can offer some great perks for taxpayers; however, it comes with some cons too that must be considered.
The government imposes some special laws on you if you happen to be under the Composition Scheme, so you need to be wary.