All about Composition Scheme under GST

 2,351 total views

All about Composition Scheme under GST

 

Eligibility for Composition Scheme:

  1. Businesses with annual turnover up to Rs 1.5 crore can opt for composition scheme.
  2. It may be noted that aturnover of all businesses with the same PAN has to be added up to calculate turnover for the purpose of the composition scheme.
  3. Only Manufacturers of goods, Dealers, and Restaurants (not serving alcohol) can opt for the composition scheme under Section 10.
  4. Service providers can opt into a similar scheme for composition dealers notified by the CGST (Rate) notification no. 2/2019 dated 7th March 2019 where the total turnover limit is Rs.50 lakh.

 

 Rate of GST in case of Composition taxable person:

The tax rate in case of Composition Scheme is as under:

Type of Business CGST SGST Total
Manufacturers and Traders (Goods) 0.5% 0.5% 1%
Restaurants not serving Alcohol 2.5% 2.5% 5%
Service Providers 3% 3% 6%

 

 

 Applicability of Reverse Charge Mechanism (RCM) Provision:

  1. Composition dealer has to pay tax under reverse charge mechanism wherever applicable.
  2. The rate applicable to the supplies is the rate at which GST has to be paid.
  3. This means that rate under composition scheme should not be used for reverse charge purposes.
  4. No input tax credit is available for tax paid under reverse charge for a composition dealer.

 

 Collection of GST by composition dealer collect tax from customers:

Composition dealer is not allowed to collect composition tax from the buyer.

 

Inter-state supplies by composition Dealer:

Composition scheme is available only for dealers doing intra-state supplies. If a dealer is involved in inter-state supplies then they have to opt out of the scheme.  Person in composition scheme is not allowed to do inter state supply.

 

Purchase of Goods from an unregistered dealer and RCM liability

  1. Tax at normal rates has to be paid on purchases from an unregistered dealer only from 01.07.2017 to 12.10.2017. From 13.10.2017onwards, there is no need to pay tax on these purchases, except if the taxpayer is into real estate.
  2. The builders are required to pay tax on a reverse charge basis at 18% for any shortfall beyond 80% in the purchases from GST registered vendors.
  3. No ITC is available on tax paid under reverse charge.

 

Admissibility of ITC on composition dealers:

Composition dealer is not allowed to avail input tax credit of GST on purchases.

 

Issue of Tax Invoice by Composition dealer:

Composition dealer cannot issue a tax invoice but has to issue Bill of Supply as tax has to be paid by the dealer out of pocket and buyer can not avail ITC on purchases from composition dealer.  Composition dealer cannot charge GST from their customers separately.

Filing of Returns by composition dealer:

 

  1. The taxable person is required to pay tax on quarterly basis in a challan-cum-statement from FY 2019-20, i.e CMP-08 instead of furnishing return, i.e. GSTR-4.
  2. Annual Return: Frequency of filing GSTR-4 returns has been made annual with effect from FY 2019-20 replacing the GSTR-9A annual return.

Records keeping by composition dealer

Dealers registered under composition scheme are not required to maintain detailed records as required by a normal taxpayer.

Switching from normal scheme to composition scheme:

  1. When switching from normal scheme to composition scheme, the taxpayer shall be liable to pay an amount equal to the credit of input tax in respect of inputs held in stock on the day immediately preceding the date of such switchover.
  2. The balance of input tax credit after payment of such amount, if any, lying in the credit ledger shall lapse.

 

Opt in and Opt out of the composition scheme:

  1. Opt in and opt out is possible in the GST Composition Scheme.
  2. One can opt to switch between the composition scheme and the normal scheme on the basis of turnover.
  3. The declaration of change can be submitted on the GST Portal.
  4. Before the beginning of every financial year, a registered taxpayer is required to provide a declaration on the GST Portal. This cannot be done anytime during the year. Form CMP-02 must be used to opt into the composition scheme which may be supplier of goods and service provider.
  5. One can move from Composition scheme to the regular scheme only in case the turnover crosses the threshold limit of Rs. 1.50 Cr in the financial year. In such cases, dealer have to file a declaration form for shifting from composition to the regular scheme. When a dealer opts out of the composition scheme all the normal rules are applicable from the day of opting out. In such case, the dealer will have to file two CMP-08 & will also have to file GSTR-1 and GSTR-3B for the period afterwards.

Whether interstate purchases attracting reverse charge as IGST:

  1. IGST is not required to be paid by a composition dealer.
  2. The dealer who is required to pay tax under reverse charge, import of service or purchase from an unregistered dealer has to pay only CGST and SGST.

 

Mode of Calculating GST in case of Composition Scheme:

  1. Composition dealer is required to pay tax at a specific rate on total sales.
  2. The dealer has to pay tax under reverse charge on specified purchases, purchase from unregistered dealers and import of services.
  3. In short, Total GST payable by composition dealer  =
    Tax on supplies (net of advance and goods returned)
    + tax on B2B transactions where reverse charge is applicable
    + tax on B2B purchases from unregistered suppliers wherever applicable
    + Tax on Import of services.
  4. The rate of tax on transactions under reverse charge, purchase from an unregistered dealer and import of services as discussed above will be at normal rates, i.e. the rates applicable to the supplies.
  5. Rates under the composition scheme are applicable only to sales of a composition dealer.

 

 How will the aggregate turnover be computed for the purpose of composition?

Aggregate turnover will be computed on the basis of turnover on an all India basis and will include value of all taxable supplies, exempt supplies and exports made by all persons with same PAN, but would exclude inward supplies under reverse charge as well as central, State/Union Territory and Integrated taxes and cess.

1 Comment

  1. July 13, 2021
    K. Mohamed Rafeeque

    I read it Sir and found that this can perfectly used as a Guide in the matter of dealing with Composition dealers. Very fine, thank you so much

    Reply

Leave a Comment

Your email address will not be published.

the taxtalk

online portal for tax news, update, judgment, article, circular, income tax, gst, notification Simplifying the tax and tax laws is the main motto of the team tax talk, solving