GST Composition scheme | GST Biling Software

GST Composition Scheme Rules, Apr-04-2020

GST Composition Scheme?

Composition Scheme is a fast and easy scheme for taxpayers under GST. Small taxpayers will relieve themselves of the boring GST formalities and pay GST at a set turnover rate. Any taxpayer whose income is less than Rs. 1.0 crore * may select this scheme

Who can register for the Composition Scheme?

A3. The Composition Scheme is an efficient, beneficial, easy and extremely simple scheme for taxpayers under the GST regime. Individuals or organization owners can opt for the GST Composition Scheme in order to get rid of painful GST formalities by paying a specified rate of GST from their annual turnover. This GST Composition Scheme has been designed especially for manufacturers, traders, and businessmen who produce an annual turnover of 1 crore rupees or more. Another criteria put on the table by the tax department is for service providers to shell out 6 percent of their annual turnover, provided they only earn 50,00,000 INR. Few points that the taxpayer must satisfy to be 100 percent eligible under the Composition Scheme are –

A bill of supply mentioning the words ‘composition taxable person’ must be issued on the bill of supply. A tax invoice will not work, only a bill of supply will.

The supplier has no right to claim the input tax credit.

The supplier cannot be supplying goods that are non-taxable.

The supplier of the respective goods/services must ensure that the financial turnover in the previous year was below Rs. 50,00,000.

The supplier cannot be involved in inter-state supplying pipelines.

The supplier must ensure that they cannot supply services via a 3rd party E-commerce operator.

Who cannot register for the Composition Scheme?

A4. The GST Composition Scheme is not for everybody and there are limitations as to who can register under this scheme and who cannot. Keep reading to equip yourself with knowledge regarding who is not allowed to take advantage of the Composition Scheme -

An individual or organization that follows an interstate supply pipeline is not eligible under the Composition Scheme.

In the event that the aggregate turnover for a person / company and all forms of registration crosses the benchmark limit of Rs 50 lakhs or Rs. 75 lakhs, the person / company will be disallowed from participating in the Composition Scheme.

Supplier of specific services except for the supplier of restaurant services.

Supplier of a specific category of goods that are non-taxable as mentioned in the CGST / SGST and UTGST Acts.

A supplier who is working on supplying goods and services via an E-commerce operator.

If the supplier is supplying ice products, they are not allowed under the Composition Scheme. Irrespective of whether the product contains tobacco, sweet or cocoa.

The supplier must be an individual / organization that is registered under the GST regime. If they are not registered, then they cannot avail of the Composition Scheme.

The supplier’s goods cannot be purchased from an unregistered dealer.

What are the requirements for availing the Composition Scheme?

A5. Opting for the GST Composition Scheme is not mandatory and is absolutely voluntary. Be it an individual or a business or an organization, as long as they have an annual turnover of under Rs. 1 crore or Rs. 75 lakhs they are permitted to submit a registration and hop on to the Composition Scheme bandwagon. But, in the event that on any given time their annual turnover crosses the mentioned limit, they automatically become illegible to remain a part of the Composition Scheme and have to reapply and register under the normal scheme that all taxpayers of India are categorized under. Keep reading to understand the certain conditions that need to be fulfilled in order to be a part of the Composition Scheme –

Only individuals and businesses who are active in the supply of goods are allowed to be a part of this scheme. Service providers are restricted from joining this scheme, except for restaurant service providers.

The supply of goods must strictly be intrastate – within the same state. Any form of interstate supply of goods will not be considered and will immediately lead to the cancelation of registration under the Composition Scheme.

If a supplier / dealer / individual / business / organization sells even a slight section of their products via E-commerce operators, then they are considered illegible under the Composition Scheme. For example – if Puma is selling its shoes through Myntra and Amazon then Puma will not be allowed to register themselves under the Composition Scheme

Suppliers are restricted and should also refrain from collecting this composition tax from the payment they receive through supplying their goods. Also, in no way are they permitted to take Input Tax Credit.

A business owner or working individual cannot merge taxes for several businesses or job verticals under the same PAN. The person will have to apply for the composition scheme for all the 3 business domains separately and also pay their dues separately.

How should a Composition Dealer issue bills?

A7. A Composition Dealer is responsible for issuing a Bill of Supply. By no means can the dealer issue a tax invoice. The main reason for this bill’s structural limitation is that there cannot be a loophole where the taxpayer can avoid paying taxes themselves. The taxpayer cannot be paying the composition tax from the money received by customers and it must be paid out of their pockets itself. Read the following points to precisely understand how a Composition Dealer must issues bills –

CGST and SGST on the bill cannot be charged by the composition dealer, neither can a tax invoice be issued.

The Bill of Supplies has to mandatorily be supplied in the GST bill.

The invoice has to have a visually present text that states “Composition taxable person, not eligible to collect tax on supplies”..

The Bill of Supply must include the following details in order to not face rejection and go through the need of issuing a new Bill of Supply –

Full name, complete factory or office address, and GST IN (Goods and Service Tax Identification Number) of the supplier.

A serial number with no spaces that must only contain numeric and / or alphabets that are unique for each financial year. Keep in mind, this has to be consecutive.

Date of the issue of Bill of Supply

Full name, complete factory or office address, unique GST IN (Goods and Service Tax Identification Number) of the recipient – as long as they are registered.

HSN Code of goods. If it is a restaurant service provider, then the Accounting Code for services must be mentioned too.

Types of goods or services, units, size, etc. – A short and detailed description of the supplier’s commodity.

The overall and final value of goods after applying relevant discounts or credit notes if at all.

Hand-signed signature or a digital signature of the supplier or whosoever his / her authorized representative may be.

What are the returns to be filed by a Composition Dealer?

A8. There are three returns that need to be filed by a Composition Dealer – namely CMP – 08, GSTR 4, and GSTR - 9A. Keep reading for a detailed understanding regarding each of these returns -

CMP – 08 – This is a comparatively recent move under the GST regime. It is a return cum challan statement that consists of organized information and details regarding inward / outward supplies along with every bit of taxes paid on such supplies. Even the interest payable needs to be filed for transparency in a business’s financial activities so as to avoid any breach of legal rules and regulations. CMP – 08 was made with the intention to replace the quarterly GSTR – 4 filings which required a mandatory quarterly submission.

GSTR – 4 is a GST return. The Composition Dealer is responsible for calculating, formulating and submitting this return. Normal taxpayers need to submit quarterly returns in a year. But a Composition Dealer who has opted for the Composition Scheme has to only submit 1 GSTR – 4. Keep in mind, the due date for filing GSTR is on the 18th of a month, post the end of a quarter. Any sort of mistakes made in the GSTR – 4 forms cannot be rectified until the next quarterly filing date has arrived.
Speaking of penalties, each day post the final day for GSTR – 4 filing submission comes with a penalty of Rs. 50 per day and the penalty cannot cross Rs. 5000.

GSTR – 09 is an annual return that has to be filed by taxpayers who have successfully registered themselves under the GST regime. The GSTR – 09 form consists of details that relate to the inward / outward supplies that were made in the previous year under various tax brackets – namely CGST, SGST, HSN, and IGST. The whole point of filing this return is that it comprises of an extensive database regarding all monthly / quarterly returns filed (GSTR – 1, GSTR - 2A, GSTR - 3B). This ensures complete transparency and eradicates the chance of any breach of financial legal rules and regulations.

What are the advantages of the Composition Scheme?

A9. The following are few of the tens of advantages that come with being registered under the Composition Scheme –

1. Limited Compliance – The taxpayer involved in the composition scheme has far lesser compliances under the GST regime. A regular taxpayer has to file monthly tax returns for every year they work along with an additional annual return. But, a taxpayer under the Composition Scheme is required to only submit 4 quarterly returns known as GSTR – 4 and one annual return known as GSTR -9A. This permits more time for companies and individuals to focus on their business growth rather than being occupied in compliance procedures.

2. Lower Tax amounts – All taxpayers who come under the Composition Scheme umbrella face the benefit of shelling out much lower tax rates. The difference is noticeable in the longer run, without a doubt. Regarding suppliers of goods, manufacturers and traders they have to pay 1 percent of their annual turnover, provided they earn a specific amount. Whereas, regarding restaurant service suppliers who do not serve alcohol, they have to pay 5 percent of their annual turnover provided they earn a specific turnover. Recently, some specific service providers were approved to join the Composition Scheme, but with a rate of 6 percent of their annual turnover.

3. Greater Liquidity – Normal taxpayers face the problem of cash management due to output tax on their supplies on a regular basis. This forces normal taxpayers to throw in a large chunk of their working capital in the form of input credit to survive in the industrial world. But people under the Composition Scheme face a very nominal outward liability and have no worries regarding return filing by their suppliers. The comfort in cash flow allows businesses to flex their wings and explore other aspects of the business without facing additional burdens of loans, liquidation or losing control of their commodities on a mortgage. .

Apart from the reduced stress of maintaining financial records for the government, issuing regular invoices, filing constant returns, etc – there are several advantages. Lesser red tape, lower GST payments, and financial flexibility are few that prove to be great assets for businesses who are in the field to grow and not only sustain.

What are the disadvantages of the Composition Scheme?

A10. Although the Composition Scheme has quite a few advantages, there are also multiple disadvantages that tackle specific sections of particular businesses. Keep reading to have a better idea of such negative aspects of the Composition Scheme –

Interstate restrictions on the supply of goods and services – This makes it harder to survive for businesses that thrive on national clients in different parts of the country. If the interstate supply of goods and services was allowed under the Composition Scheme then the benefits for bigger businesses would be humungous and the attempt at infusing corporate and financial balance in the corporate world would go for a toss. Keep in mind that if a taxpayer is under the Composition Scheme, he / she is not even allowed to take part in the export of their goods as it would be considered as interstate transfers by the GST department.

Restrictions on the supply of services – Taxpayers who function and survive via providing services (except for restaurant-related services) are not permitted to opt for the Composition Scheme. This is a major restriction for small organizations who pay a lot of taxes under the Composition Scheme and only earn their finances by providing services to the masses.

People and businesses who are registered under the Composition Scheme are not allowed to supply goods via the E-commerce portal.

Taxpayers are barred from availing Input Tax Credits – The whole point of the Composition Scheme was to cancel the double taxation effect that the government’s original taxation plan implemented.

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Composition Scheme Under GST Explained

GST Composition Scheme Rules, Apr-04-2020