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GST


  • 08/08/2023
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What is Composition Scheme under GST?

If you are a small taxpayer tired of the complex and tedious GST formalities and the endless forms, then you can opt for the composition levy under GST to simplify the GST Return filing process.

In this blog, we will overview the composition scheme under GST, corresponding eligibility, and applicable rates.

What is the composition levy under GST?

The composition levy under GST is an alternative method of GST Return filing for small taxpayers with an annual turnover of less than Rs. 1.5 crore (75 Lakh in the case of some states) in the previous financial year. This scheme was introduced to simplify the taxation process for small taxpayers and reduce their compliance burden.

The composition scheme is optional, whereby the eligible taxpayers have the option to file annual returns along with quarterly payment of taxes.

What are the advantages and disadvantages of the composition levy?

Eligible taxpayers have the option to opt for the composition scheme or continue tax payments at the normal rates. Let us discuss the advantages and disadvantages of the composition levy to better understand which one should you choose,

Advantages

The major advantages of the composition levy are listed below,

  1. Simplified Compliance: Taxpayers under the composition scheme of GST have lesser compliance formalities to follow.
  2. Easier Return Filing: Registered taxpayers need to file an annual return instead of multiple monthly/quarterly returns.

Disadvantages

The major disadvantages of the composition levy are as follows,

  1. Limited Territory: Taxpayers under the composition scheme cannot make inter-state supplies, limiting the territory for business, except in some specified cases.
  2. No ITC: Input Tax Credit cannot be availed under the GST Composition Scheme.
  3. Eligibility: Only certain taxpayers can opt for the composition scheme under GST. Moreover, for multiple businesses under a single PAN, the taxpayer will have to opt for the composition scheme for all businesses.

What is the eligibility for the composition scheme?

Registered taxpayers with an annual turnover of less than 1.5 crores are eligible for the composition levy under GST. This limit is reduced to 75 Lakh for the following states,

  • Arunachal Pradesh
  • Assam
  • Manipur
  • Meghalaya
  • Mizoram
  • Nagaland
  • Sikkim
  • Tripura
  • Himachal Pradesh

It must be noted that the turnover of all businesses under the same PAN has to be added up to calculate the turnover for the purpose of the composition scheme.

Who cannot opt for the composition levy?

Listed below are the taxpayers who cannot opt for the composition levy under GST,

  1. Casual taxable persons or non-resident taxable persons.
  2. Suppliers with an aggregate turnover in the preceding financial year exceeding Rs. 1.5 Cr (or 75 Lakh in the case of North-Eastern States and Himachal Pradesh).
  3. Suppliers who have purchased any goods or services from an unregistered supplier unless he has paid GST on such goods or services on a reverse charge basis.
  4. Supplier of services, other than restaurant service.
  5. Persons supplying goods that are not taxable under GST law.
  6. Persons making any Inter-State outward supplies of goods.
  7. Suppliers making any supply of goods through an electronic commerce operator who is required to collect tax at source under section 52.
  8. A manufacturer of the following goods:
    • Ice cream and other edible ice, whether or not containing cocoa
    • Pan masala
    • Tobacco and manufactured tobacco substitutes

What are the rules for the composition scheme?

Let us now overview the requisites and conditions that need to be satisfied to opt for the composition levy,

  1. Input Tax Credit (ITC) cannot be claimed by the composition dealer.
  2. Taxpayers under the composition scheme cannot supply goods and services that are not taxable under GST.
  3. Normal GST rates shall be applicable for transactions under the Reverse Charge Mechanism (RCM).
  4. If the taxpayer has multiple businesses under the same PAN, then all such businesses are required to be registered under the scheme collectively.
  5. The word “Composition Taxable Person” must be mentioned on every notice, signboard, and bill of supply issued by the business.
  6. As per the CGST (Amendment) Act, 2018, a supply of services up to an extent of 10% of the turnover, or Rs 5 Lakhs, whichever is higher, can now be made by the manufacturer or trader w.e.f. 1st Feb 2019.

What are the GST Rates for the composition scheme?


Category of Registered Person

Rate of Tax

Manufacturers, other than manufacturers of such goods as may be notified by the Government (ice cream, pan masala, tobacco products, etc.)

1% (0.5% CGST + 0.5% SGST/UTGST)

Restaurant Services, not serving alcohol

5% (2.5% CGST + 2.5% SGST/UTGST)

Eligible service providers (or goods and service suppliers)

6% (3% CGST + 3% SGST / UTGST)

Traders or any other supplier eligible for composition levy

1% (0.5% CGST + 0.5% SGST/UTGST)


How to opt for the composition scheme?

The registered taxpayers who are eligible can opt for the composition levy scheme by submitting Form CMP-02 on the common portal. New taxpayers who are not registered under GST are required to submit Form GST REG-01 to opt for the composition scheme.

What are the applicable returns and forms under the composition levy?

  • A composition dealer is required to pay taxes in the CMP-08 quarterly by the 18th of the month after the end of the quarter.
  • Form GSTR-4 is required to be filed by the composition taxpayer annually.

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