Compared to the regular scheme, Composition scheme appears much simple in terms of the registration formalities, GST Rates to be followed and compliances to be adhered to.
Let’s try to understand
1. Eligibility: Taxpayers (existing & new both) whose turnover is less than 1.5 Cr can Opt for this scheme.
For North Eastern States the turnover limit has been set as 75 lakhs.
If turnover is equal to more than the threshold limit specified above, the business cannot opt for Composition scheme and have to opt for the regular scheme.
2. How to Opt for Composition Scheme:
At the time of applying for registration under GST, the business should select Composition Scheme.
3. Compliances under Composition Scheme:
a. Taxpayers need to file GSTR 4 Quarterly
b. Taxpayers also need to file An Annual Return GSTR 9A
c. At the beginning of each Financial Year the dealer needs to intimate that it intends to opt the composition scheme for that year.
4. Conditions to be fulfilled under composition scheme:
a. Composition Dealer cannot issue Tax invoice. He should issue Bill of Supply instead and mention on the bill of supply that he is a “Composition Taxable Person, Not eligible to collect Tax on Supplies”
b. Composition dealer cannot charge Tax from his customers.
c. The Business cannot claim Input Tax Credit
d. The Business cannot make any inter-state supply of goods.
e. Business has to mention: Composition Taxable Person” on their Business board/ Display Board.
f. Such Business cannot sell through e-commerce operator
g. Service Providers are not eligible for composition scheme except for Restaurants(not serving alcohol)
5. Evaluation of Composition Scheme
a. In case the Business has a turner of Rs. 1.5 Cr or above , there is no point evaluating the composition scheme as it has to register under Regular scheme
b. No Input credit available on purchases, which means purchase cost per unit will be high
c. Since the Business cannot collect tax from customers, it will miss on B2B customers who have registered under normal scheme as they won’t get the benefit of input credit for purchases made from Business registered under composition scheme.
d. Even though compliance burden is less under Composition Scheme , but overall Tax burden will be high.
In case a Trader has turnover of say 1.49 Cr- he shall pay Rs. 149000/- as GST. In addition he would also be paying the taxes on purchases made, for which the business cannot avail input credit.
e. Since they cannot make interstate supply, their territory of operations will be confined to the state they are registered in.
6. Advantages of Composition scheme
Lesser compliance in form of record keeping.
7. Rates of Tax under composition
a. For both Manufacturers and Traders the rate of taxation is 1% and for Restaurants (not serving alcohol) its 5%.
8. Manufacturers of Ice cream, Pan Masala, Tobacco cannot opt for Composition scheme.