Every tax system prescribes several actions which need to be taken by businesses to ensure compliance with statutory provisions. Things like periodic payment of taxes, filing timely returns and maintaining prescribed records are necessary steps in a tax system for corporate taxpayers. However, small business owners find it overwhelmingly challenging to deal with such requirements of the law due to lack of knowledge and expertise.
To make compliance easier for small businesses, many state governments had provisions in their VAT system for payment of a composition levy by small businesses. This ensures greater compliance without the need for maintaining copious records. Service tax laws do not have this system.
The One Nation One Tax Scheme (GST) which promises to club all the indirect taxes into one also boasts a composition scheme for small businesses. The GST Composition Scheme will make compliance with tax laws hassle free for eligible businesses opting for the scheme.
Not everyone is eligible to enrol under this scheme. It is meant for taxpayers whose aggregate turnover does not exceed Rs 1.5 crore threshold in a Financial Year. In case of Special category states, this limit is Rs 75 lakh. The turnover shall be calculated by considering all the entities registered with the same PAN. However, if a person supplying the following is not eligible to opt for this scheme:
Any existing taxpayer not under Composition Scheme may choose to opt for it (subject to being qualified), only from the beginning of the next financial year. The application will have to be filed on or before 31st March of the previous year so that returns can be filed accordingly.
Dealers under Composition Scheme may be allowed to switch over to normal scheme even during the year if they want to. However, they cannot switch over to Composition Scheme again during the same financial year.
The rate of tax as prescribed will be less than regular GST but not less than 1% of the turnover during the Financial Year. Tax rates under the scheme are 1% and 5%
|Serial Number||Category of Registered Person||Rate of Tax|
|1||Manufacturers of goods (other than those specifically notified by govt. such as ice-cream, Pan masala, Tobacco products)||1% of the turnover|
|2||Restaurant Services||5% of the turnover|
|3||Traders||1% of the turnover|
|4||In case of:
-Transaction under reverse charge
-Purchase from unregistered dealer
-Import of service
|Normal Rates of Taxes|
Total GST Payable – Sum of the following:
Instead of filing 3-4 returns monthly, taxpayers registered under this scheme will be required to file returns once every quarter. GSTR 4 must be filed by 18th of the month succeeding the relevant quarter.
Section 16(3) of Model GST Law states that when a taxpayer ceases to pay composition tax and becomes liable to pay tax as a regular taxpayer under GST then he is eligible to take Input Tax Credit in respect of inputs held in stock and inputs contained in semi-finished and finished goods held in stock as on the day immediately preceding the day from which he becomes liable to pay tax under regular scheme.
As per section 16(12) of Model GST Law, when a taxpayer liable to pay tax as a regular taxable person switches over as a taxable person for paying tax under section 8 (GST Composition Scheme), then he needs to pay an amount by way of debiting in the electronic credit /cash ledger equivalent to Input Tax Credit in respect of inputs held in stock and inputs contained in semi- finished and finished goods held in stock as on the day immediately preceding the day of such switch over.
|GST CMP-01||Registration under composition scheme|
|GST CMP-02||Intimation of willingness to Opt out of the scheme|
|GST CMP-03||Details of stock and inward supplies from unregistered person|
|GST CMP-04||Intimation of withdrawal from scheme|
|GST CMP-05||Show cause notice on any contravention of any rules or act|
|GST CMP-06||Reply to show cause notice|
|GST CMP-07||Issue of Order|
|Point||Normal Dealer||Composition Dealer|
|Calculation||Output GST-Input GST||Gross Sales * Rate of Tax|
|Returns||3 Returns Monthly
1 Annual Return
|1 Return Quarterly
1 Annual Return
|Sales||Inter-state & Intra-state||Only Intra-state allowed|
|Rate Of taxes||Higher Rate of Taxes||Lower Rate of Taxes|
In case a composition dealer wants to opt out of composition scheme, he can give an intimation in Form GST CMP-04. Within 30 days of intimating the option of withdrawal, he must furnish details of stock input by filing Form GST ITC -01.
Let us discuss a few advantages of being a composition dealer:
These are some of the disadvantages of being a composition dealer:
If I convert myself from composition scheme to regular scheme, whether I will be eligible to get ITC? A: You are eligible for ITC on inputs held in stock and inputs contained in semi-finished or finished goods held in stock as on date on which you have converted yourself from composition scheme to regular scheme.
What would happen to the input tax credit availed by a registered person who opts for composition scheme? Reversal on inputs or even on capital goods?
If a registered person opts for composition scheme then he must reverse the input tax credit taken by him on inputs which are being used by him in the year in which he opts for composition scheme. However, in case of capital goods, the credit shall be reduced by 5% per quarter of the year or part thereof from the date of invoice.
Can a person paying tax under composition levy, withdraw voluntarily from the scheme? If so, how?
Yes, the registered person who intends to withdraw from the composition scheme can file a duly signed or verified application in FORM GST CMP-04. Every person who has filed an application for withdrawal from the composition scheme, may electronically furnish, a statement in FORM GST ITC-01 containing details of the stock of inputs and inputs contained in semi-finished or finished goods held in stock by him on the date of withdrawal, within a period of thirty days of withdrawal.
How is composition scheme applicable in case of multiple branches of the same business?
If the composition scheme is opted by the dealer, then it will be for all the businesses that are associated with the PAN.