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Composition Scheme is a simple and easy scheme under GST for taxpayers. Small taxpayers can get rid of tedious GST formalities and pay GST at a fixed rate of turnover. This scheme can be opted by any taxpayer whose turnover is less than Rs. 1.0 crore*.

Attention GST registered taxpayers! 31st March 2018 is deadline to opt into Composition for FY 2018-19

For: Any GST registered taxpayer who want to opt for the Composition scheme for FY 2018-19;

31st March 2018 is the deadline to file the intimation in Form GST CMP-02 to opt into composition scheme for the FY 2018-19.

Follow our Step-by-step Guide to file CMP-02

Also, furnish statement in form ITC-03 within 60 days of commencement of the FY 2018-19 to declare the ITC claim that has to be reversed on inputs/capital goods in stock, in semi-finished or in finished goods.

 

1. Who can opt for Composition Scheme

A taxpayer whose turnover is below Rs 1.0 crore* can opt for Composition Scheme. In case of North-Eastern states and Himachal Pradesh, the limit is now Rs 75* lakh.

Turnover of all businesses registered with the same PAN should be taken into consideration to calculate turnover.

 

Latest update as per Notification dated 29.12.2017

The late fees for failure to furnish returns in GSTR-4 by the due date have been waived off to the extent of the amount in excess Rs. 50 per day for every day the failure continues.

In case of the filing of Nil Returns in GSTR-4, The late fees for failure to furnish return by the due date, have been waived off to the extent of the amount in excess of Rs. 20 per day for every day the failure continues.

*As per 23rd GST Council Meeting held on 10th Nov 2017

The main threshold for composition scheme was recommended for an increase to Rs. 1.5 crore (from earlier 1 crore). But this is yet to be notified.

2. Who cannot opt for Composition Scheme

The following people cannot opt for the scheme:

  • Taxpayer supplying exempt supplies.
  • Supplier of services other than restaurant related services
  • Manufacturer of ice cream, pan masala, or tobacco
  • Casual taxable person or a non-resident taxable person
  • Businesses which supply goods through an e-commerce operator

3. What are the conditions for availing Composition Scheme?

The following conditions must be satisfied in order to opt for composition scheme:

  • No Input Tax Credit can be claimed by a dealer opting for composition scheme
  • The taxpayer cannot make any inter-state supply of goods.
  • The dealer cannot supply GST exempted goods
  • Taxpayer has to pay tax at normal rates for transactions under Reverse Charge Mechanism
  • If a taxable person has different segments of businesses (such as textile, electronic accessories, groceries, etc.) under the same PAN, they must register all such businesses under the scheme collectively or opt out of the scheme.
  • The taxpayer has to mention the words ‘composition taxable person’ on every notice or signboard displayed prominently at their place of business.
  • The taxpayer has to mention the words ‘composition taxable person’ on every bill of supply issued by him.
  • Those supplying goods can provide services of upto Rs. 5 lakh,

4. How can a taxpayer opt for composition scheme?

To opt for composition scheme a taxpayer has to file GST CMP-02 with the government. This can be done online by logging into the GST Portal.

This intimation should be given at the beginning of every Financial Year by a dealer wanting to opt for Composition Scheme.

Here is a step by step Guide to File CMP-02 on GST Portal.

5. How Should a Composition Dealer raise bill?

A composition dealer cannot issue tax invoice. This is because a composition dealer cannot charge tax from their customers. They need to pay tax out of their own pocket.

Hence, the dealer has to issue a Bill of Supply.

The dealer should also mention “composition taxable person, not eligible to collect tax on supplies”  at the top of the Bill of Supply.

6. What are the GST rates for a composition dealer?

Following chart explains the rate of tax on turnover applicable for composition dealers :

Capture

As per notification dated 01.01.2018, turnover in case of traders has been defined as ‘ Turnover of taxable supplies of goods’.

7. How should GST payment be made by a composition dealer?

GST Payment has to be made out of pocket for the supplies made.

The GST payment to be made by a composition dealer comprises of the following:

  • GST on supplies made.
  • Tax on reverse charge
  • Tax on purchase from unregistered dealer.

8. What are the returns to be filed by a composition dealer?

A dealer is required to file a quarterly return GSTR-4 by 18th of the month after the end of the quarter. Also, an annual return GSTR-9A has to be filed by 31st December of next financial year.

Also, note that a dealer registered under composition scheme is not required to maintain detailed records.

*Latest update on Due dates:

Due date for GSTR-4 for the period Apr-Jun 2018 is 18.07.2018

9. What are the advantages of Composition Scheme?

The following are the advantages of registering under composition scheme:

  • Lesser compliance (returns, maintaining books of record, issuance of invoices)
  • Limited tax liability
  • High liquidity as taxes are at a lower rate

10. What are the disadvantages of Composition Scheme?

Let us now see the disadvantages of registering under GST composition scheme:

  • A limited territory of business. The dealer is barred from carrying out inter-state transactions
  • No Input Tax Credit available to composition dealers
  • The taxpayer will not be eligible to supply exempt goods or  goods through an e-commerce portal.

Here is a video to understand about composition scheme under GST

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  1. Composition Dealers are required to file CMP-04 to opt out of composition scheme. Here is a guide to file CMP-04 on GST Portal
  2. A GST taxpayer who wants to opt for Composition Scheme has to file form CMP-02. Here is a guide to file CMP-02 on GST Portal.
  3. Opted for Composition Scheme under GST? You have to file CMP-03 within 90 days of opting in. Here is a guide to file CMP-03 on GST Portal.
  4. Let us look at chapter 2 of CGST rules - Composition Rules. This text is taken from cgst-rules-01july2017.pdf.
  5. Composition Scheme Rules under GST w.r.t. intimation for Composition Scheme, effective date for levy, conditions and restrictions, validity and rate of tax.
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  8. To help small businesses avoid the hassles of GST, the Model GST law has proposed a simpler levy. This levy is called Composition Levy.
  9. Reasons why you should avoid registering as a taxpayer under composition scheme.
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