GST Composition Scheme

GST Composition Scheme:- Features, Rate And Rules, Eligibility, Benefits, Bill Format

GST Composition Scheme:- The Goods and Services Tax (GST) scheme has been introduced by the central government to facilitate the tax compliance process for small taxpayers, including Micro, Small, and Medium Enterprises (MSME), Small and Medium-sized Enterprises (SMEs), and small traders. Many state Value Added Tax (VAT) laws already have the GST composition scheme in place; however, central laws such as excise and central tax do not contain it. The new scheme may be difficult for non-experts to comprehend. The purpose of this post is to help you comprehend the new GST scheme and how it affects you.


Who can opt for the GST Composition Scheme?

This scheme is available to taxpayers with less than Rs 1,500,000 in revenue annually. The turnover cap is Rs 7,500,000 for Himachal Pradesh and the Northeastern states. When supplies are delivered to their clients, a compounding dealer is unable to collect taxes or claim input tax credit.

GST Composition Scheme

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Features of GST Composition Scheme:

The following are some crucial components of the GST Composition Scheme:

  • Composition schemes are available to manufacturers, dealers, and restaurant owners (applicable only to non-alcoholic restaurants).
  • It is not possible for a compounding dealer to claim input tax credit or collect taxes on supplies that are delivered to their clients. This leads to the generation of bills of supply rather than tax invoices for sales transactions.
  • Compared to regular business owners, business owners registered under this scheme pay tax at a significantly lower rate. The tax that the compounding vendors pay will be equivalent to one percent or more of the company’s yearly revenue.
  • Depending on the kind of business, there are differences in composition rates.
    • It is 1% for manufacturers and traders.
    • It is 5% for the restaurant industry.
  • An individual return must be filed by the 18th of the following month for each quarter under the Composition Scheme, according to the registered business owner.
  • If a business owner uses the same PAN for five different businesses, he must register each one under the composition scheme or choose not to participate in it.
  • When using the reverse charge method, compounding dealers will be subject to taxes at the standard GST rate.
  • With the exception of restaurant services, a compounding dealer may provide services up to 10% of the previous fiscal year’s turnover or Rs. 5 lakhs, whichever is greater.

Conditions for availing of this scheme:

To be eligible for this scheme, a person needs to fulfill the following requirements. An individual taxpayer:

  • Not eligible for the Input Tax Credit (ITC)
  • unable to supply items like alcohol that are not subject to GST
  • Reverse Charge (RC) transactions require the payment of taxes at regular rates.
  • Each business segment must register under a unique PAN or decide not to continue with the program.
  • Every generated bill must read “Composition Taxable Person,” and his place of business must display the phrase.
  • In addition, a manufacturer or trader may provide services up to 10% of their total revenue or Rs 500,000, whichever is greater.

How to opt-in for the GST Composition Scheme:

To select the scheme, the steps listed below must be completed:

  • The authorities must receive a GST CMP-02 from the taxpayer.
  • You can complete the procedure online by signing into the GST portal.
  • This information must be provided by a dealer at the start of each Financial Year (FY).
GST Composition Scheme

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GST Composition Scheme Rate:

The following are the GST rates under this scheme:

  • GST is 1% which manufacturers and dealers must pay.
  • Businesses that don’t serve alcohol must pay GST at the rate of 5%.
  • The GST payable by other service providers will be 6%.

GST Composition Scheme Rules

Registered under the composition scheme are a variety of manufacturing and service industries, including restaurants and traders, in accordance with the provisions of the GST Act. However, the GST composition scheme does not apply to the following people or businesses:

  • A non-resident taxpayer or a transient taxpayer
  • Companies or individuals who supply goods via an operator of an online shopping portal collect tax at the source (u/s 52).
  • companies or individuals involved in the interstate supply of goods
  • Producer of edible ice cream and other treats with or without cocoa added
  • Producer of pan masala, tobacco products, and tobacco substitutes
  • As long as they pay GST using a reverse charge basis, companies and individuals who have purchased goods from unregistered suppliers are acceptable.
  • Providers engaged in the provision of goods exempt from GST
The list is indicative and subject to change.

Notably, registered entities and individuals are not allowed to engage in the interstate supply of goods or services under the composition scheme; however, they are allowed to buy goods or services from suppliers who are allowed to do so by the GST Act. Accordingly, organizations registered under the composition scheme are allowed to purchase goods and services from outside the state, but they are not allowed to resell them to clients or other organizations outside the state.

Initially, the GST composition scheme did not permit registration for service providers other than restaurant services. This changed in January 2019 when the 32nd GST Council Meeting announced that companies providing services (other than restaurant services) would also be able to register under the composition scheme.

GST Composition Scheme Return

According to the rules of the currently in effect GST composition scheme, registered businesses and individuals must file electronic returns on the Official GST Portal by “the 18th of the month succeeding the last month of the previous quarter” on a quarterly basis. This essentially means that by January 18 of the following year, the online GST composition scheme return for the quarter ending in December must be filed. Individuals and businesses registered under composition must file their returns using the GSTR-4 Form. You can use the GSTR-4 Offline Tool to prepare your returns for online submission.

Composition Scheme Forms under GST

The essential forms that businesses and individuals registered under the composition scheme must complete for different purposes in accordance with the current GST regulations are listed below.

Form Number/NamePurpose of Form
GST CMP-01Intimation for tax payment under composition scheme (for provisionally registered business entity/individual)
GST CMP-02To withdraw from the GST composition scheme
GST CMP-03To provide details of stock/inward supply from unregistered business/person
GST CMP-04To withdraw from GST composition scheme
GST CMP-05Show cause notice issued by appropriate tax official on contravention of GST Act rules
GST CMP-06Reply to show cause notice issued in Form GST CMP-05
GST CMP-07Order indicating acceptance/rejection of show cause notice reply provided in Form GST CMP-06
GST REG-01Details of inputs available with the composition registered supplier in the form of raw materials, semi-finished, and finished goods
GST ITC-01To opt for a composition scheme (unregistered entity/persons)

To apply for or use the GST composition scheme, you may need to submit additional forms; this list is not all-inclusive.

GST Composition Scheme

GST Composition Scheme Bill Format

In order to avoid having to charge GST on outward supplies of goods or services, businesses and individuals registered under the composition scheme are unable to issue tax invoices or GST invoices. If goods or services are supplied outside of the composition dealer, a Bill of Supply needs to be issued. By law, this bill of supply must be printed with the words “Composition Taxable Person, Not Eligible to Collect Tax on Supplies”.A Bill of Supply must contain the following essential information:

  • Name of the supplier, address, and GST Identification Number (GSTIN)
  • Date of the bill of supplies’ issuance
  • Recipient information, including name, address, and GSTIN (if applicable)
  • HSN for the shipped goods
  • The goods or services’ description and quantity (if applicable)
  • Total cost of materials (after deducting any relevant discounts)
  • The supplier signature or digital signature

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Eligibility of Registered Individual/s:

When choosing the Composition Scheme, a registered business should not be:

  • engaged in providing services other than those listed in Schedule Paragraph 6 Clause (b). This suggests that service providers are not eligible to receive the Composition Scheme benefits. Restaurant service is one instance.
  • Manufacturers who engage in any interstate outward supply of goods, such as those producing ice cream, pan masala, or tobacco, are not eligible for the scheme.
  • This means that you can only use the Composition Scheme if you are supplying goods and services inside the state, or if you are supplying goods through an e-commerce operator required by Section 52 to collect tax at the source.
  • Should not produce any goods that the government notifies you of based on the suggestions made by the Council.

Benefits of GST Composition Scheme Registration

  • lower compliance requirements, making it appropriate for small companies with little funding
  • Limited responsibility for taxes due in place of a composition levy
  • Enhanced liquidity for small enterprises due to reduced tax rates

Limitations of the GST Composition Scheme Registration

  • limited functionality as a composition The dealer does not permit sales transactions to occur outside of the state.
  • Input tax credit mechanism unavailable to offset GST payments
  • Goods supplied through an online shopping portal are prohibited for businesses registered with Composition.

FAQs on the GST Composition Scheme

Q. Who is not eligible for the composition scheme?

Ans- The makers of ice cream, pan masala, and tobacco products are not allowed to opt to be a part of the composition scheme. a provider for states nationwide. A transient taxable individual

Q. Can I convert regular GST to a composition scheme?

Ans- Before the beginning of the fiscal year in which the option to pay tax under the aforementioned section is exercised, any taxpayer who is registered under GST as a regular taxpayer must submit an application on the GST Portal using Form GST-CMP-02 to opt for the composition levy.

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