GST

Composition Scheme Under GST

GST Composition Scheme is an alternative scheme specifically designed for small taxpayers to lower the taxability burden and ease down the complex tax filing process of using a wide range of forms. This composition scheme under GST has surely reduced the burden on small taxpayers; however, on the other hand, it also upholds certain restrictions in terms of territorial transactions and tax collection. The scheme focuses on the tax rates on the basis of the annual turnover, which also includes taxable supplies, exempt supplies, and exports made under the same PAN, but also excludes inward supplies under reverse charge (for all State, Union Territory, and Integrated taxes).

Check if you can opt for the Composition scheme.

If a taxable person or business belonging, running, or falling in any of the following categories can opt for the Composition Scheme:

• If the gross turnover is below Rs 1.5 crore
• For a specific set of regions (Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh) if the gross turnover is below INR 75 lakh
• A composition dealer supplying services to the extent of 10 % of gross turnover, or INR 5 lakhs, whichever is more
• Annual Turnover of each business registered within the same PAN should be considered to calculate the gross turnover.

However, despite qualifying the above eligibility criteria for opting for the Composition scheme, if any individual or business falls within the following category, then the Individual or business will not be eligible to opt for the Composition Scheme. The categories are as follows:

• Ice cream, pan masala, or tobacco Manufacturer
• A Taxpayer making inter-state supplies
• A casual taxable person
• Non-resident taxable person

Quick bit for conditions

GST Composition Scheme comes with the following conditions if you intend to opt for the scheme.

• A dealer opting for the GST Composition Scheme could not claim any Input Tax Credit.
• Goods that are not subject to taxes under the GST are prohibited for supplying goods such as alcohol.
• The reverse charge mechanism allows the taxpayer to pay the taxes for transactions at the normal rate.
• For Taxable businesses of different segments, such as textile, electronic, groceries, etc., which are registered under the same PAN, it is required that all of the segments of the businesses are registered collectively under the scheme and similarly done collectively in order to opt out of the scheme.
• All the taxpayers opting for the composition scheme are mandatorily required to put a signboard or display board labelled as “Composition Taxable Person” at the premised of business operation.
• All the taxpayers opting for the composition scheme are obliged to label any bill of supply issued under the business name as a ‘composition taxable person’.
• A taxable person, trader or business is now allowed to supply services up to an extent of 10 % of the gross turnover or INR 5,00,000 (whichever is higher). This came into existence through the CGST (Amendment) Act, 2018, which was applicable from 1^st Feb 2019.

What is your Transaction Limit?

Under the GST Composition Scheme, Composition taxpayers have certain turnover limits varying as per the nature of the business and the kind of services and goods offered, which are as follows:

Registration Status	Good Manufacturers and Traders	Restaurants (not serving alcohol)	Service Providers
Newly Registered	< 1.5 Crore	< 1.5 Crore	<50 Lakhs
Already Registered	< 1.5 Crore	< 1.5 Crore	<50 Lakhs

Check the tax rates.

In opting for the composition scheme, the following tax rates come into the picture of taxability. These tax rates vary as per the category of services and goods offered, which are as follows:

Types of Taxes	Good Manufacturers and Traders	Restaurants (not serving alcohol)	Service Providers
GST	1 %	5 %	6 %
CGST	0.5 %	2.5 %	3 %
SGST	0.5 %	2.5 %	3 %

Pros and Cons of Composition Scheme

Pros	Cons
Significant decrease in compliance such as record keeping, returns, issuance of invoices, etc.	The dealer is subject to limited territorial business practices, barring him from Inter-state transactions.
Limited Tax Liability	Composition Dealers don’t get any Input Tax Credit
Taxes at lower rates lead to high liquidity	Prohibition on supply of non-taxable goods (under GST) through e-commerce portal. For example- Alcohol
Elimination of the flowing effect of Tax	Enhanced expenditure by software purchase for GST compliance
Higher registration threshold	Composition Taxpayers are not allowed to recover the composition tax from their respective buyers as a tax invoice cannot be raised.
Heightened treatment for e-commerce dealers	SMEs to experience higher tax burden

Follow-up on Recent notifications under the Composition Scheme

6th February 2023	All the taxable individuals or businesses who are Composition taxable persons and intend to opt into the scheme for FY 2023-24 may opt for the scheme by submitting a declaration using Form CMP-02 via the GST portal by 31st March 2023.
1st February 2023 Budget 2023 Update	After the amendment of Section 10 of the CGST Act, the individuals or businesses that supply goods using the mode of an e-commerce operator are allowed to opt for the composition scheme.
26th May 2022	Following the CGST Notification no.7/2022 dated 26th May 2022, there will be no late fee for the delay in filing GSTR-4 for FY 2021-22 as it has been waived off if filed between 1st May and 30th June 2022.
24th February 2022	Composition taxable persons and those interested in opting into the FY 2022-23 scheme must submit a declaration on the GST portal in Form CMP-02 by 31st March 2022.
28th May 2021	According to the 43rd GST Council meeting and the outcome of the CBIC notification, Interest relief has been provided for the filing of CMP-08 for the January 2021 to March 2021 quarter, according to which interest will not be charged until 3rd May for any delay. However, 9% of interest will be charged if the filing is done after 17th June, extending to 18% later.The due date to file GSTR-4 for FY 2020-21 is extended up to 31st July 2021The maximum late fee to be charged is 500 rupees for GSTR-4 per return for “nil filing” and INR 2000 for other than “nil filing.”

Learn to opt for the Composition Scheme.

After evaluating all the ropes, if you are ready to opt for the GST Composition Scheme, you may proceed with your application online through the designated GST Website. In order to indicate your readiness to opt for the Composition Scheme, you should fill out the form GST CMP-02, which serves the indicated purpose.

Conclusion

GST Composition Scheme has been designed to lower the taxability burden on an individual and does release the complexity of the taxation process, providing room for business capital management. A Composition Tax Payer enjoys relaxation in terms of taxes, but it also comes with drawbacks, such as limiting transactional territory to Intra-state. However, if evaluated well, the benefits of the Composition scheme give space to ignore the drawbacks to a certain extent.

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