The GST composition scheme is a simple option for small businesses under GST. It helps them avoid complicated GST rules and pay GST at a fixed rate based on their turnover. This scheme is available to companies with a turnover of less than ₹1.5 crore. Using the GST search tool, you can check if a business has chosen the Composition Scheme. Enter the GSTIN (GST number), and look at the ‘Taxpayer Type’ column in the results. It will show if the business is a regular taxpayer or part of the Composition Scheme.
Who Can Choose the Composition Scheme?
- Any taxpayer with a turnover of less than ₹1.5 crore can opt for the Composition Scheme.
- For businesses in North-Eastern states and Himachal Pradesh, the turnover limit is ₹75 lakh.
- As per the CGST (Amendment) Act, 2018, composition dealers can also provide services up to 10% of their turnover or ₹5 lakh, whichever is higher.
Important Updates
- This amendment has been effective since February 1, 2019.
- On January 10, 2019, during the 32nd GST Council meeting, it was proposed that the turnover limit for service providers be increased.
- The turnover of all businesses under the same PAN should be combined to calculate total turnover.
Who Cannot Choose the Composition Scheme?
The following individuals and businesses are not eligible for the GST composition scheme:
- Manufacturers of ice cream, pan masala, or tobacco.
- Businesses making inter-state supplies or selling exempt goods/services.
- Casual taxable persons or non-resident taxable persons.
- Businesses supplying services through e-commerce platforms must collect TCS (Tax Collected at Source) under Section 52 of the CGST Act.
- Manufacturers or suppliers of goods/services as notified by the Government based on GST Council recommendations.
Conditions for Choosing the Composition Scheme
Conditions that need to follow when choosing the GST composition scheme are given below;
- Cannot claim Input Tax Credit (ITC).
- Cannot sell goods not taxed under GST, like alcohol.
- Must pay regular tax rates for Reverse Charge Mechanism (RCM) transactions.
- All businesses under the same PAN must register or not use the scheme.
- The taxpayer must write ‘Composition Taxable Person’ clearly on all notice boards or signboards at their business place.
- They must also add ‘Composition Taxable Person’ on every bill of supply they issue.
- From February 1, 2019, manufacturers and traders can also offer services up to 10% of their turnover or ₹5 lakh, whichever is more.
How to Choose the Composition Scheme?
- To opt for the GST composition scheme, file GST CMP-02 online on the GST Portal.
- Log in to the portal to complete the process.
- Submit the form at the start of every financial year if you want to use the scheme.
- Follow simple steps to file CMP-02 on the GST Portal.
Composition Dealer Raise
A composition dealer can’t give a tax invoice because they can’t charge tax to customers. They have to pay the tax themselves. Instead, they need to give a Bill of Supply. They should also write “Composition Taxable Person, not eligible to collect tax on supplies” at the top of the bill.
A composition dealer has to pay GST from their own money for the supplies they make. The GST payment includes:
- GST on supplies made.
- Tax on reverse charge.
- Tax on purchases from an unregistered dealer
This rule applies only to certain goods, services, and registered persons starting February 1, 2019. It is not applicable until further notice. The best option is to join a goods and service tax course to learn more about this.
Benefits of the GST Composition Scheme
Let’s read about benefits of GST composition scheme;
Lower Tax Rates
Taxpayers in the Composition Scheme pay lower taxes. The Government sets lower rates for them, much less than the regular GST rates.
Less Tax and Better Cash Flow
By choosing the Composition Scheme, businesses pay less tax. This means less money is tied up in tax payments, giving small businesses more cash to use. This extra cash can help businesses grow and expand.
Disadvantages of the Composition Scheme
Let’s read about some disadvantages of the composition scheme;
No Sales Outside the State
The biggest drawback is that businesses using the Composition Scheme cannot sell goods to other states. They can only sell within the state where they are registered. This also means they cannot export goods, as exports are treated like inter-state sales under GST.
No Input Tax Credit
In the Composition Scheme, taxpayers cannot claim input tax credits. This means they can’t get the tax paid on goods they buy from other registered sellers back. Also, customers who buy goods from a composition dealer can’t claim any tax credit, which increases the cost for both the dealer and the customer.
Cannot Collect Tax from Customers
A composition dealer can’t collect tax from their customers. They are not allowed to issue a tax invoice and must pay the tax themselves.
Services(Other than Restaurant)
Small service providers with a turnover of up to ₹50 lakh in the previous financial year can choose the GST Composition Scheme. This scheme simplifies taxes by letting service providers pay a fixed percentage of their turnover as tax.
Businesses thinking of choosing this scheme should go through all the information above before starting the registration process to make the transition easier. To understand more about this, joining GST online courses will help learners to acquire more knowledge in the accounting sector.
