Composition Scheme Under GST Explained

All your Queries under Composition Scheme Answered Here

Goods and Services Tax is set to bring along a new regime of business compliance in India. Large organizations have the requisite resources and expertise to address these requirements. Startups and Small and Medium Enterprises (SMEs) on flip side may struggle to comply to these provisions. To resolve such scenarios, government has introduced composition scheme under GST, which is merely an extension of current scheme under VAT law.

Composition Scheme under GST, a taxpayer is required to file one summarized return on quarterly basis, instead of three monthly returns as applicable for normal businesses.

Here we have addressed some of the basic queries around Composition Scheme under Goods and Services Tax Law.

Q1. Who can opt for Composition Scheme?

Ans. Businesses dealing in only goods can only opt for composition scheme, Services Provider have been kept outside the scope of this scheme. However restaurant sector taxpayers may also opt for the scheme.

Q2. What is the Tax Rate applicable on Composition Dealer?

Ans. A registered tax payer, who is registered under the Composite Scheme year pay tax at a rate not more than 1% for manufacturer, 2.5% for restaurant sector and 0.5% for other suppliers of turnover.

Q3. Does a Composition Dealer must maintain detailed records?

Ans. No, a dealer registered under composition scheme is not required to maintain detailed records as in the case of a Normal Taxpayer.

Q4. Does a Composition Dealer have option to avail Input Tax Credit?

Ans. No, a Composition Dealer is not allowed to avail input tax credit of GST paid to their supplier.

Q5. Can a Composition Dealer issue Tax Invoice?

Ans. No, since composition dealer is not allowed to avail input tax credit, such dealer cannot issue a tax invoice as well. A buyer from composition dealer will not be able to claim input tax on such goods.

Q6. Which returns are required to be filed by a taxable person registered under Composite Scheme?

Ans. Taxable person is required to furnish only one return i.e. GSTR-4 on a quarterly basis and an annual return in FORM GSTR-9A.

 

Q7. Is liability to pay taxes under Reverse Charge Mechanism covered under the Composite Scheme?

Ans. Any tax payable under reverse charge mechanism will not be covered under the scheme, taxes will be liable to be paid as a normal tax payer.

Q8. Can a Composition Dealer collect composition tax separately?

Ans. No, Composition Dealer is not allowed to collect composition tax from the buyer.

Q9. What is the threshold limit to be eligible for Composition Scheme?

Ans. Any dealer whose aggregate turnover in a financial year does not exceed Rs. 50 Lakh can opt for composition scheme

Q11. Can a dealer involved in interstate supplies opt for Composition Scheme?

Ans. No, Composition Scheme is available only for Intra-state supplies. If dealer is involved in Inter-State supplies, he cannot opt for composition scheme.

Q12. What are the penalties applicable on Composition Dealer in case of any default?

Ans. If tax administration has reason to believe that a composition dealer has wrongly availed the benefit under the composition scheme. Such person shall be liable to pay all the taxes which he would have paid under normal scheme. Also, he will be liable to pay a penalty equivalent to an amount of such tax payable. Such Penalty will not be levied without giving a Show Cause Notice to the composition dealer.

Q13. What are the transition provision, if business transits from Composition Scheme under current regime to Regular Taxation?

Ans. Taxpayer registered under composition scheme under current regime will be allowed to take credit of Input held in stock, or in semi-finished goods or in finished goods on the day immediately preceding the date from which he opts to be taxed as a regular tax payer.

Q14. What are the conditions for availing input credit on stock lying at the time of transition?

Ans. Following are the conditions which must be addressed by the taxpayer to avail credit on input at the time of transition from composition scheme to normal scheme:

  1. Such inputs or goods are intended to be used for making taxable supplies under GST law.
  2. Taxpayer was eligible for CENVAT Credit on such goods under previous regime, however couldn’t claim it being under composition scheme.
  3. Such goods are eligible for input tax credit under GST regime.
  4. Taxpayer has legal evidence of input tax paid on such goods.
  5. Such invoices were issued within a period of 12 months from GST applicable date.

Q15. What is the treatment for input credit availed when transitioning from Normal Scheme to Composition Scheme?

Ans. Switching from normal scheme to composition scheme, taxpayer shall be liable to pay an amount equal to the credit of input tax in respect of inputs held in stock on the day immediately preceding the date of such switch over. The balance of input tax credit after payment of such amount, if any lying in the credit ledger shall lapse.

Click Here to read our guide on “Benefits of Registering under GST Composition Scheme”

 

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