GST Act provided relaxation for small business owners from registration with a limit of Rs.40,00,000 for the supply of goods and Rs.20,00,000 for the supply of services.
In the case of dealers who are liable to register under GST, to provide further benefits to small business owners, the scheme of GST registration under the composition scheme was introduced.
The composition scheme is nothing but a flat percentage of GST to be paid by the dealer, irrespective of the actual tax rate applicable for Goods.
Under section 10(1) if the turnover in the preceding financial year is not more than Rs.1 crore 50 lakhs then the dealer can take advantage of the composition scheme.
If the dealer is located in the state of Arunachal Pradesh, Uttarakhand, Nagaland, Sikkim, Mizoram, Meghalaya, Manipur then the turnover in the preceding financial year should not exceed Rs.75,00,000.
What are the eligible business and GST tax rates for GST registration under the composition scheme?
- Trading in goods – 0.5% CGST and 0.5% SGST TOTAL 1 %.
- Manufacture of Goods – 0.5% CGST and 0.5% SGST TOTAL 1 %.
- Restaurant services – 2.5 % CGST and 2.5 % SGST TOTAL 5 %.
- Other services – 3 % CGST and 3 % SGST TOTAL 6 %.
In case if you need to verify the status of the registered dealer under composition scheme, we can check whether the dealer GST registration number is under composition scheme in search GST taxpayer status functionality at GST portal.
What are the conditions for GST registration composition scheme for supply of goods, manufacture of goods, and restaurant services ?
- In case of service sector, only restaurant services are eligible for composition scheme U/s 10(1) to pay GST at 5 %, for other service providers composition scheme U/s 10(2A) to pay tax at 6 % on value of taxable services.
- Input tax credit cannot be availed.
- Dealer should not collect tax separately from the buyers or receiver of services
- Every dealer who had opted for GST registration to save tax under composition scheme should file GST return every quarter on or before due date, officer can send show cause notice to cancel GST number in case return is not filed continuously for 4 quarters.
- Interstate supply of goods or services are not allowed, so this scheme is not applicable to dealer who supply goods to other state, SEZ, and exports to other country.
- Dealer can provide services for value higher of (a). 10 % of turnover of previous financial year, or (b). Rs.5,00,000 whichever is higher. This relaxation is not applicable for dealer providing restaurant services.
- Customers cannot take input of tax credit
- There are certain goods such as tobacco, bricks etc shall not be eligible for composition scheme.
- In case the tax is payable under reverse-charge on inward supplies, tax shall be paid at the GST rate applicable for the goods or services at normal rates.
- Supply through E-commerce operator is restricted.
Entry in to the scheme and Exit from the scheme
- Scheme should be availed before the commencement of financial year in case of regular taxpayer, fresh application are not required to be filed each year by existing dealers under composition scheme.
- Option for GST composition scheme should be availed for all business in the respective PAN number, so if you have more than 1 GST registration, you cannot be regular taxpayer for one GST registration number and composition scheme.
- Once the turnover exceeds the limit of Rs.1.5 crores or 50 lakhs, the dealer needs to convert to regular scheme and pay taxes at normal rates. And the options lapse immediately on exceeding the limit, thereafter the dealer should file GST returns in monthly basis or under QRMP scheme.
- In case the goods held in stock of finished goods and raw material is purchased from unregistered dealers, the tax applicable for the goods shall be paid on opting to composition scheme.
- In case of conversion from regular taxpayer to composite taxpayer statement of ITC in form GST- ITC-03 should be filed with in 60 days from the commencement of financial year.
Manner of making tax payment and filing GST returns by the composite taxpayer?
- Tax amount calculated on the value of goods sold or services provided shall be paid on quarterly basis with in 18th of succeeding month.
- Return on outwards supply in GSTR-4 shall for each financial year on or before April 30th from the end of financial year.
- Payment of tax interest and any penalty shall be paid from electronic cash ledger.
Consequences of non-compliance to conditions of composite levy scheme
- Where any of the conditions applicable to a composite taxpayer are violated, the benefit under this scheme is not applicable from the date of violation.
- Tax at normal rate shall be payable by the dealer from the date of violation.
- Tax invoice shall be issued to the buyers of goods or receivers of services.
- Dealer shall file intimation for withdrawal from the scheme within 7 days from the date of such event in form GST CMP-04.
- In case if the officer has reason to believe that any of the conditions are violated, show cause notice if form GST CMP-05 may be issued by the officer.
- Dealer shall provide reply with in 15 days from the date of issue of notice.
- If the officer is satisfied with the reply it will be accepted and dealer is allowed to continue in the scheme within 30 days on submission of reply.
- In case the reply is not satisfactory, the dealer will cease to avail benefits of the scheme with effective from the date of violation or date after violation as mentioned by the proper officer.
Benefits of composition scheme ?
- The dealer will pay less taxes comparatively in composition scheme
- In case of service sector when the taxable input services received is between 20 -30 % of outward supply, then composite tax payment scheme is beneficial assuming applicable GST rate is 18 %.
- In case of supplier of goods, scheme will be beneficial when profitability is high in composition scheme.
- The scheme is available to all dealer who have private limited company registration or partnership firm registration or proprietorship registration or any other business structure.
- When the tax on outward supply is higher than tax rate on inward supply
- Relaxation from filing GST monthly returns such as GSTR-1 and GSTR-3B is not required.
- High liquidity due to the fact that, Payment of taxes are required to be made only on quarterly basis, the dealer will be having enough time to pay taxes. Compared to regular taxpayer, composite taxpayer will face less burden to pay taxes on time due to extended duration between date of billing and date of tax payment to government.
- Reduced administrative burden to file periodic returns as the returns are required to filed once in a year compared to every month filing in composition scheme.
- High liquidity because customers won’t block payment for non filing of GST returns, it is not relevant due to non-availability of ITC to customers.