Compliances in the new GST Law is kept high in order to create a more transparent tax regime. However, in some cases, these tax compliances can be a burden for the seller/service provider. This is much more prevalent in case of a small scale business who cannot comply with so many legal formalities. For this purpose composition scheme has been introduced in the GST law. Composition was also available in the previous indirect tax law, keeping this in mind, the Government provided an option to the small businesses to opt for the Composition Scheme under GST.
Who can opt for the Composition Scheme under GST?
The Composition Scheme under GST is an alternate method of payment of tax designed for small scale businesses whose turnover is up to ₹1 crore (increased from ₹75 lakh in the 22nd GST Council Meeting). The objective of composition scheme is to bring simplicity and to remove the tedious compliance procedures. This helps in reduction in the compliance cost of the small scale tax payers. This scheme is an optional scheme, exercisable only at the taxpayers end.
The eligible person opting to pay tax under this scheme has to pay tax at a prescribed percentage (1 to 5 percent) of his turnover every quarter, instead of paying tax at the normal rate.
How to compute the Aggregate turnover?
Aggregate turnover shall be computed by adding all sales made in India. This includes value of all :-
- Taxable supplies,
- Exempt supplies (including Non-Taxable supplies)
- Inter-state supplies
Also, it includes all the above mentioned supplies made by all other persons using the same PAN. However, this excludes all the central tax, state tax, integrated tax, union territory tax and cess.
Payment of tax and Input Credit in Composition Scheme under GST :-
- The taxpayer will have to pay tax on quarterly basis before 18th of the month succeeding the quarter during which the supplies were made.
- If the taxpayer opts to pay tax under the composition scheme, he is considered to be out of the credit chain. He cannot availe credit on his input supplies. When he switches over from composition scheme to normal scheme, eligible credit on the date of transition would then be allowed.
Rates specified under the composition scheme :-
|S. No.||Category/Type of supply||Rate|
|Restaurant Service||5% (2.5% CGST plus 2.5%SGST) of turnover|
|Manufacturers (other than those notified by the government who are not eligible like Tobacco, Pan Masala, Ice Cream manufacturers etc.)||2% (1% CGST plus 1% SGST) of turnover|
|Traders or any other eligible supplier||1% (0.5% CGST plus 0.5% SGST) of turnover|
Filing of return :-
A person opting for the Composition Scheme under GST does not need to file monthly returns. However, he will be required to electronically file quarterly returns in Form GSTR-4 on the GST Network (GSTN) common portal by 18th of the month succeeding the quarter in which the supplies were made.
Some important highlights :-
- The option to pay tax under Composition Scheme under GST can only be exercised prior to the commencement of the relevant financial year. To exercise his option. the person will have to electronically file Form GST CMP-02.
- The person who voluntarily wants to withdraw from the composition scheme can file a duly signed/verified application in FORM GST CMP-04.