Know about Composition Dealers under GST
What is Composition Scheme?
Composition Scheme is for Small Business who cannot maintain detailed books of accounts and records.
The businesses who has opted for the scheme have to pay output tax at a lower rate and he can file one Quarterly Returns along with one Annual return. But dealers who have opted for composition scheme cannot take credit of Input tax paid.
Who can opt for Composition Scheme?
This scheme can be opted by any taxpayer whose turnover is less than 1.5 crores*. This turnover limit is applicable to all states including Jammu & Kashmir and Uttarakhand except North Eastern States like Assam, Meghalaya, Manipur, Mizoram etc. The turnover limit for North Eastern States is Rs 75 lakhs*.
*These above limits are as per 23rd GST Council Meeting held on 10th November, 2017. Prior to this meeting the limits were Rs 1 crore and Rs 50 lakhs respectively.
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
What are the benefits or advantages under GST composition scheme?
Following are the benefits of opting Composition Scheme:
• Less compliance
Under normal GST scheme a tax payer has to file minimum 3 returns monthly and one return annually. But in a composition scheme only a quarterly return will be uploaded under GSTR4 which will ease the compliance burden for the SMES (small and medium enterprises), so that they can focus more on their business rather than compliance procedures.
• Reduce tax liability
The second benefit of being registered with composition scheme is the rate structure. The rate is 1% for manufacturers and Traders and 5% is for services of Restaurant Business.
• High liquidity
Owing to reduced tax liability, the composition dealer enjoys a higher liquidity.
What are the disadvantages of Composition scheme?
- No Credit of Input Tax
- No Inter-state business
- Pay tax from own pocket
- Strict penal provisions
What are the conditions for availing Composition Scheme?
- The person opting for composition levy should be a registered person.
- Aggregate turnover of registered person in the preceding financial year should not exceed Rs.1.5 crores.
- No Input Tax Credit can be claimed by a dealer opting for composition scheme.
- The taxpayer cannot make any inter-state supply of goods and services except Restaurant Business.
- The dealer cannot supply goods which are exempted under GST.
- 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.
- They cannot charge GST to their customers on Bill of Supply. They need to pay tax from their pocket.
How to 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.
What are the GST rates for a Composition Dealer?
Type of Business
Manufacturers and Traders of Goods
Restaurants not serving alcohol
According to 23rd GST Council Meeting on 10th November, 2017, the GST rate for manufacturers of Goods has been reduced from 2% to 1%.
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.