What is the GST Composition Scheme?
Who can opt for the GST Composition Scheme?
Who cannot opt for a Composition Scheme?
- Suppliers supplying goods which are not taxable under GST laws
- Casual Taxpayers
- Taxpayers involved in the Inter-state supply of Goods
- Non-Resident Indian Taxpayer
- Foreign taxpayer
- Tax Collector or TDS Collector
- Input Service Distributor
- Manufacturer of ice cream, tobacco or pan masala
- Supplier of goods through a e-commerce operator
What are the Rules for taxpayers under the GST Composition Scheme?
- A taxpayer opting for composition scheme cannot claim Input Tax Credit (ITC)
- The supplier cannot supply goods that are not subject to tax under GST
- Under the Reverse Charge Mechanism, the taxpayer must pay taxes at normal rates for transactions
- In case the taxpayer has diversified business interests such as electronic accessories, textile, groceries etc. under the same PAN, then the taxpayer has to obtain GST registration for all the different business activities under the GST composition scheme
- On every bill of supply issued by the taxpayer, he or she mentions the words “Composition Taxable Person”.
- Also, the taxpayer has to mention the words “Composition Taxable Person” on every signboard displayed at his or her shop or place of business.
What are the benefits of the GST Composition Scheme?
- Reduced tax liability
- Lesser Compliance and Paper work including issuance of invoices, returns, maintenance of books of accounts etc.
- Higher liquidity of businesses as a result of lower rate of taxes
What are the drawbacks of the GST Composition Scheme?
- The dealer or supplier will be barred from conducting an inter-state supply of goods and services and will have limited territory to conduct business operations
- The composition dealers cannot avail Input tax Credits (ITC).
- The dealer will not be eligible to supply non-taxable goods under GST such as alcohol and goods supplied through e-commerce portals.
Q1: How to Opt for Composition Scheme under GST?
A taxpayer has to file form GST CMP-02 in order to opt for composition Scheme under GST with the Government. The filing of the aforesaid form can be done by login into the GST portal. A taxpayer will be given intimation at the beginning of the financial year to opt for the composition scheme.
Q2: How to raise a bill as a Composition Dealer?
A tax invoice cannot be issued by a composition dealer as the composition dealer is not liable to shift the tax burden to its customers. A composition dealer has to pay the entire amount of GST from his own pocket. Thus, a composition dealer is liable to issue a Bill of Supply. Also, the composition dealer has to mention “Composition Taxable Person, Not Eligible to Collect Tax on Supplies” at the top of the Bill of Supply.
Q3: How should a composition dealer make GST payment?
A composition dealer should make GST Payment out of his own pocket for the supplies made by him. The GST payments made by a Compositions Dealer includes the following:
- GST on Reverse Charge
- GST on sale of goods and services
- GST on purchasing goods from an unregistered dealer under GST
Q4: What are the returns that a composition dealer files under GST?
A composition dealer has to pay taxes on a quarterly basis and furnish a statement CMP-08 by the 18th of the month after the end of the quarter. Also, a composition dealer has to file a return in form GSTR-4 annually by 30th April of the next financial year. Apart from that, the composition dealer is supposed to file GSTR-9 as annual return by 31st of December of the next financial year. It is also to be noted that a composition dealer does not require maintaining records of each transaction.