GST or the Goods and Services Tax is an indirect tax which has been imposed in India on the supply of goods and services. GST has been imposed at every step in the process of production, but it is actually meant to be refunded to all the people at various stages of production other than the final consumer.
GST came into effect from 1st July 2017 by the implementation of the 101st Amendment of the Constitution of India, by the government of India. This tax has replaced the several multiple flowing taxes which were levied by the central and state governments of India.
The rates, rules, and regulations of the tax are governed by the GST Council. The GST Council consists of the finance ministers of all the states and the center. GST is originally meant to replace the multiple indirect taxes with a federated tax. Therefore, it has been expected that the country’s 2.4 trillion dollar economy will be reshaped, but there has obviously been a lot of criticism.
GST has an easy and simple scheme for taxpayers, called the Composition Scheme. According to this scheme, small taxpayers can get rid of tedious formalities of GST and pay GST at a fixed rate of turnover. This composition scheme can be opted by taxpayers whose turnover is less than Rs. 1.0 crore. However, CBIC has recently notified that the threshold limit has been increased from Rs 1.0 Crore to Rs. 1.5 Crores.
There are a few questions related to this scheme which we have answered in this article:
1. Who all can opt for the Composition Scheme?
A taxpayer having turnover less than Rs 1.0 crore, can opt for the Composition Scheme. The limit for North-Eastern states and Himachal Pradesh is now Rs 75 lakh.
As per an amendment in GST, the CGST Act, 2018, a composition dealer can supply services to a limit of 10% of turnover, or Rs.5 lakhs, whichever is higher. This amendment has been applicable from the 1st of Feb, 2019. Also, in the 32nd meeting, the GST Council proposed an increase to this limit for service providers on 10th Jan 2019. Turnover of all the businesses registered under the same PAN is taken into consideration to calculate turnover.
2. Who all cannot opt for the Composition Scheme?
Listed below are the people who cannot opt for the scheme:
1. A dealer making inter-state supplies can’t opt for this scheme.
2. Service providers other than restaurant related services can’t opt for this scheme.
3. A non-resident taxable person or a casual taxable person can’t opt for this scheme.
4. Manufacturers of pan masala, ice cream, or tobacco can’t opt for this scheme.
5. Businessmen who supply goods via an e-commerce operator can’t opt for this scheme.
3. What are the necessary conditions for applying the Composition Scheme?
1. The dealer opting for composition scheme cannot claim the input tax credit.
2. GST exempted goods can’t be supplied by the dealer.
3. Under the Reverse Charge Mechanism, the taxpayer has to pay the taxes are normal rates for the transactions.
4. All the different segments of the business of a taxable person, such as electronic accessories, textiles, groceries, etc. which are under the same PAN, must be registered under the scheme collectively or should opt-out of the scheme.
5. The words ‘composition taxable person’ should be mentioned on every notice or signboard displayed prominently at their place of business by the taxpayer.
6. The words ‘composition taxable person’ should be mentioned on every bill of supply issued by the taxpayer.
7. As per the amendment of GST, the CGST Act, 2018, a trader or manufacturer can supply services to an extent of ten percent of turnover, or Rs.5 lakhs, whichever is higher. This amendment has been applicable from the 1st of Feb, 2019. Before the amendment, the limit was up to Rs 5 lakhs.
4. How can a person paying tax opt for the Composition scheme?
For a lesson to opt for the Composition scheme, he has to file GST CMP-02 with the government. For this, you can log into the GST Portal and do this online.
This should be intimidated at the beginning of every Financial Year by a dealer or a trader who wants to opt for the Composition Scheme.
5. Can a Composition dealer raise the bill, if yes then how?
A composition dealer is not capable of issuing a tax invoice. This is due to the reason that a composition dealer is not capable of charging tax from their customers. The tax is paid out of their own pocket. This, the Bill of Supply is issued by the dealer. The words “composition taxable person, not eligible to collect tax on supplies” should be mentioned by the dealer at the top of the Bill of Supply.
6. What returns are to be filed by a composition dealer?
A quarterly return GSTR-4 has to be filed by the dealer, by the 18th of the month after the end of the quarter. Further, an annual return, GSTR-9A also has to be filed by 31st December of the next financial year. There has been an update as on 22nd December 2018: The due date for filing GSTR-9, GSTR-9A and GSTR-9C has been extended till 30th June 2019 by CBIC for the financial year 2017-18.
However, the latest update on due dates are as follows:
The due date for GSTR-4 for the period Oct-Dec 2018 has been changed to 18.01.2019.
Also, a point to be noted is that a dealer who has been registered under composition scheme does not require to maintain and detailed records.
7. How should the composition dealer make a GST payment?
GST Payment has to be made out of the pocket of the dealer, for the supplies made.
The payment of GST that has to be made by a composition dealer comprises of the following:
1. It includes GST on supplies made.
2. It includes a tax on reverse charge.
3. It includes a tax on the purchase of goods from an unregistered dealer*
* It is applicable only on certain specified categories of goods and services as well as the notified class of registered persons. It will start from 1st Feb 2019 but is yet to be notified. Hence, it will not be applicable until then.
8. List the advantages of the Composition Scheme.
The under-listed points are the advantages of registering under the composition scheme:
1. There will be lesser compliance (returns, issuance of invoices, maintaining books of record).
2. There will be a limited tax liability.
3. There will be high liquidity as the taxes are at a lower rate.
9. List the disadvantages of the Composition Scheme.
Now, let us see the disadvantages of registering under GST composition scheme:
1. There will be a limited territory of business as the dealer has been barred from carrying out inter-state transactions.
2. There will be no Input Tax Credit available to the composition dealers.
3. The taxpayer will not be allowed to supply goods through an e-commerce censure or exempt goods.