GST

An Overview of GST Return under Composition Scheme

GST Return under Composition Scheme

The GST or Goods & Services Tax is an indirect taxation method that has knowingly simplified Indian Taxation Laws. GSTR-4 is the GST return filing for composition dealers only; it’s a scheme under the GST law to some types of taxpayers. The GST Return under Composition Scheme must be filed annually now, whereas it was earlier filed quarterly. In this write-up, we will discuss the GST Return under Composition Scheme for composition dealers and why they are vital.

What do you mean by GSTR-4?

Before we discuss GST Return under Composition Scheme lets, understand the meaning of GSTR-4. It is the GST Return for composition dealers, and unlike regular taxpayers, who must file up to 3 returns for month, composition dealers must only file one return/year in the GSTR-4 Form. In most instances, the deadline for filing the GST Return is April 30th, following the Assessment Year. All taxpayers who have chosen the GST Return under Composition Scheme are required to file GSTR-4 form.

Important Things to Know Regarding GST Return under Composition Scheme

  • The GST site now provides an offline excel-based tool to aid taxpayers file their annual or yearly GSTR-4 Return on time. The GST Composition Return Filing facility to the GST portal was added in August, 2020;
  • The due date to select for the Composition Scheme in the Assessment Year 2020-21 by filing form CMP-02 was extended to June, 30  2020. This will only apply to taxpayers registered under the Section 10 of the CGST Act and those who will opt-in via the CGST notification that came out on 7th March, 2019.
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Who can opt for the Composition Scheme?

  • Businesses with annual turnover up to Rs. 1.5 crore can choose for this scheme. All businesses’ turnover with a similar PAN has to be added up to estimate turnover for the objective of the Composition Scheme.
  • Only manufacturers of products, Dealers, and Restaurants (that do not serve alcohol) can also opt for this scheme under Section 10. However, services providers can choose an identical scheme for Composition Dealers informed by the CGST (Rate) notification number 2/2019 dated March 07, 2019 where the total turnover limit is Rs. 50 lakh.

The following individual cannot opt for GST Return under Composition Scheme:

  1. Casual Taxpayer;
  2. Manufacturers of tobacco, pan masala, and ice cream;
  3. Business that use an e-commerce operator to supply products;
  4. Individuals making inter-state supplies;
  5. Non-resident taxpayer.

GST Composition Scheme – A Brief

  1. Composition dealers should pay tax under the mechanism (reverse charge) wherever it is applicable. The rate or cost for the supplies produced will be the rate or price at which the dealer has to pay the GST. Therefore, the rate under the scheme cannot be used to pay taxes under the reverse charge mechanism.
  2. Such Composition dealers don’t have to pay the IGST since they have to pay the SGST & CGST only for the import of products or services from an unregistered dealer under the reverse charger mechanism.
  3. Unlike a normal taxpayer, Composition dealers don’t have to maintain records of all their monetary transactions. But, they must issue bills of supply & not tax invoices, as the dealer pays the tax out of their pouch. Such dealers cannot recover the GST (Goods and Services Tax) paid from their clients.
  4. Such dealers cannot avail of any Input Tax Credit, better known as ITC, for the tax they paid under the reverse charger mechanism.
  5. The Composition Dealers have to pay tax at a particular rate on their total sales and must pay tax under the mechanism for certain purchases. Therefore, the total GST payable = tax on supplies + tax on B2B (Business to Business) transactions (reverse charge) + tax on unregistered dealer (Business to Business) purchases + tax on import of services.
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GST Returns for Composition Dealers

Such dealers must file the following returns under the GST regime:

  • Taxable persons or individuals must pay tier taxes through a challan-cum-statement from 2019 onwards in the CMP-08 Form;
  • From the Assessment Year 2019-20, the frequency of filing GSTR-4 has been changed from a quarterly basis to an annual/yearly basis;
  • Filing of GSTR-9A Form will continue to apply with some exemptions for Assessment Years 2017-18 & 2018-19.

GST Returns under Composition Scheme – Applicable GST Rate

Business TypeCGSTSGSTTotal
Service Providers3%3%6%
Manufacturers & Traders (Goods)0.5%0.5%1%
Restaurants not Serving Alcohol2.5%2.5%5%

Withdrawing from GST Return under Composition Scheme

Any taxpayer who wants to withdrawing from a GST Composition Scheme should file GST CMP-04 Form within 7 days of the occurrence of an event mandating withdrawal from the Composition Scheme under the GST Regime. Moreover, after filing the withdrawal application from GST Composition Scheme, the taxpayer should file GST Returns till the due date of providing the Return for the quarter ending September of the succeeding financial years or providing of annual Return of the preceding financial years, whichever is earlier.

Conclusion

It is vital to note that any taxpayer who has opted for the GST Composition Scheme will not be entitled to avail of ITC or Input Tax Credit[1] on receipt of invoices/debit notes from the supplier for the period prior to opting for the composition scheme.

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