Composition Scheme in GST – A Complete Guide

As we know, Every Dealer who comes under the GST net, and has crossed the basic exemption limit of Rs. 20 lakhs (or Rs. 10 lakhs), must register under the GST Act.

It is imperative for small traders, manufacturers & restaurant service providers to understand the composition scheme that is available to them as an option, instead of going to the regular GST system.

Eligibility

Are you eligible for composition scheme?

Just Check this-

1. You supply ONLY goods (not services) ((but restaurants eligible))
2. Do not supply any good which is exempt under GST
3. Not involved in Inter-state (Outside State) supplies
4. Do not supply goods through any E-Commerce Operator like Amazon, Flipkart, Snapdeal etc. (who is liable to deduct TCS)
5. Total Turnover is upto Rs. 1 crore in previous Financial Year {Limit is Rs. 75 lakhs for Special Category States – Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh}
6. (If Manufacturer), then DO NOT manufacture the goods in this list either now or during the preceding FY
7. You have regular business & are not a foreign establishment

If all of these conditions are met by you, then you are eligible!

Tax Rate in composition scheme

If you are eligible as above, and opt for composition scheme, then tax rate will be –

Traders – 1% of sales [0.5% (CGST) + 0.5% (SGST)]

Manufacturers – 2% of sales [1% (CGST) + 1% (SGST)]

Restaurants – 5% of sales [2.5% (CGST) + 2.5% (SGST)]

How to Opt for Composition Scheme in GST

For New Registration

• If You have not yet applied for GST registration – Apply for GST registration under normal procedure, and during filling the registration form after getting TRN, there is a button in first page to indicate that want to opt for composition. Select it.

For Existing Registration

• If you already have an Existing GST Registration – Any existing taxpayer under Normal System may opt for Compounding scheme, if eligible (as per the eligibility conditions given in the beginning of the article), only from the next Financial Year. File GST CMP-02 on or before 31st March.
• If you had taken any input tax credit on the stock that you have as on 31st March, then also furnish Form GST ITC-03, must pay an amount equal to the input tax credit that has been taken on the stock/ capital goods as on that date.(Can utilize the balance of input tax credit, if any, for such payment, and any remaining balance lying in the electronic credit ledger shall lapse)
• Option continues automatically for further FYs, need not to apply again and again for being a composition dealer.
• If stock on transition day contains purchases from unregistered person, then pay tax on it under RCM in Form GST CMP-03.

If you have more than 1 branches, then composition scheme will apply on all branches (in same PAN)

Compliances to be followed in composition scheme (Rules for composition dealers)

1. For every Sale, issue ‘Bill of Supply’ and Mention the words “composition taxable person, not eligible to collect tax on supplies” at the top (May not issue bill of supply, if sales < Rs. 200 and customer is not registered in GST and does not demand bill).
2. Cannot charge tax on bill to customers.
3. Cannot take input credit of GST paid on purchases (input GST becomes cost).
4. Mention the words “composition taxable person” on the signboardat the entrance of your shop/ business premises.
5. For each quarter, calculate the tax. pay it and then File GSTR-4 within 18^th of next month. (Will receive info in Form GSTR-4A for reference).
6. Annual return to be filed in Form GSTR-9A by 31st December of next year.

Moving Out of Composition scheme

Mandatory – On the DAY on which your turnover exceeds Rs. 1 crore (or Rs. 75 lakhs), you will not be covered in composition scheme, and you will have to transfer to NORMAL system, from the next day. File Form GST CMP-04 within 7 days of ineligibility. (Start issuing tax invoice, collecting and paying GST at normal rate, start getting ITC)

Voluntary – Compounding dealer is allowed to switch over to Normal scheme even during the middle of the year, but then cannot switch over again to Compounding scheme during the same financial year. File Form GST CMP-04 within 7 days after going out of composition scheme.

Registration number shall be same, fresh registration will not be required. Amendment in certificate of registration will be done automatically.

INPUT TAX CREDIT ON STOCK: Dealer is entitled to take credit of input tax in respect of inputs, work-in-progress or finished goods held in stock; and on capital goods (reduced by 5% per quarter or part thereof), on the day  just before of the date from which he shifts to Normal System.

Cancellation of registration

If quarterly return is not furnished for three consecutive quarters, then registration shall be cancelled from such date, or any earlier date, as the Proper Officer may deem fit.

Penalty

• If ineligible person opted for composition scheme, liable to pay tax & penalty, Sec 73/ 74 apply.
• Proper officer may issue a show cause notice to such person in FORM GST CMP-05 as to why the option to pay tax under section 10 shall not be denied, and assesee must reply in Form GST CMP-06 within 15 days, officer will issue order in Form GST CMP-07 within 30 days.

Hope this article is informative! For any further info, feel free to “Contact Us“. 😉