Composition Scheme Under GST | A Comprehensive Guide For FY 2021-22



Goods & Services Tax structure is quite flexible and has provisions to cater to all taxpayers' needs.

Composition scheme under GST is one such provision crafted for the taxpayers who do not wish to avail of the Input Tax Credit under GST and who have an aggregate annual turnover as per the limits prescribed.

This article will discuss some of the essential FAQs about the GST Composition Scheme & discuss the eligibility required to opt for the composition scheme.

Who can opt for Composition Scheme under GST?

The taxpayers whose annual aggregate income is as follows can opt for the Composition Scheme under GST:

Aggregate Turnover (for previous FY)

Taxpayer’s Type

 

Up to Rs.1.5 Cr

 

Regular taxpayer

 

 

Up to Rs. 75 Lakhs

 

For registered taxpayers located in Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura & Uttarakhand,

 

Upto Rs. 50 Lakhs

 

Taxpayers supplying services

 

However, the following taxpayers are NOT eligible to opt for the Composition levy scheme under GST:

  • A registered TDS Deductor or Tax Collector
  • Input Service Distributor (ISD)
  • Inter-state outward supply of goods
  • Supplies via e-Commerce operators
  • Suppliers of exempted goods

GST Tax Slabs For Composition Dealers

Under the Composition Scheme, the tax slabs are different compared to the taxpayers under the normal scheme.

Observe the following table to understand the tax break up for the composition scheme taxpayers under GST:

Business Type

CGST Rate

SGST Rate

Total

Manufacturers of Goods

0.50%

0.50%

1.00%

Restaurants NOT serving alcohol

2.50%

2.50%

5.00%

Service Providers other than those mentioned above

3.00%

3.00%

6.00%

 

Now, we are familiar with some of the essential pre-requisites before we get into the steps to opt for the Composition Scheme Under GST.

Steps to choose GST Composition Scheme for FY 2021-22

Once you satisfy the eligibility criteria for opting in the GST Composition Scheme, the process to convert from regular taxpayer to the GST composition scheme is quite simple.

The taxpayer must file the FORM GST CMP-02 on the GST portal.

Step 1: Log in to the GST portal with the credentials.

Step2: Click on the ‘Services’ tab. Now click on the ‘Registration’ option and then click on the ‘Application to Opt for Composition Scheme.


Step 3: On the next screen, your business details will be shown. Fields like GSTIN, the Name of the business and address will be auto-populated by the portal.

Step 4: After checking all the boxes at the bottom, you must digitally sign the form and submit it.


You have three options to sign the form as follows digitally:

  1. Submit with DSC (Learn more on how to validate signature in pdf )
  2. Submit with E-Sign
  3. Submit with EVC

In this way, you can opt for the Composition Scheme under GST.

It is important to note that the taxpayer should file the FORM GST CMP-02 before the beginning of the next financial year. i.e. before 31st March of the preceding financial year.

Important FAQs about GST Composition Scheme

What are the GST payments for the composition taxpayers?

Following is the shortlist of the GST payments that the composition dealers should make:

  1. GST on the supplies they make
  2. Prescribed tax on the Reverse Charge
  3. Tax when you purchase goods from an unregistered dealer

What is the return filing system for the composition dealers?

  • The taxpayer opting for the composition scheme must file the GST returns in the quarterly statement CMP-08.
  • CMP-08 has to be file by the 18th of the month after the end of the quarter.
  • GSTR-4 also needs to be filed on or before 30th April of the next financial year.
  • GSTR-9A annual must be filed on or before 31st December of the net financial year.

Can Composition dealer avail Input Tax Credit on his inward supplies?

  • No, the person opting for the Composition Scheme under GST is NOT eligible to avail GST Input Tax Credit.
  • He is NOT allowed to avail ITC on his inward supplies.
  • However, when the taxpayer switches over from the composition scheme to the normal scheme, he can take credit on the date of transition.

Should a Composition dealer file monthly returns?

  • No, taxpayers enrolled under the GST composition scheme are NOT required to file the monthly returns.
  • They must file the quarterly returns in the GSTR-4 form by the 18th of the month succeeding the quarter.
  • Example: Returns for supplies in the quarter April 2021 to June 2021 should be filed on or before 18th July 2021.

GST experts advise making your quarterly return filing more efficient; you must choose automated GST return software. This takes care of all the compliance issues, and the automatic filing of the returns saves your efforts and business time.

Merits & Demerits of GST Composition Scheme

Merits

Following are some of the merits for registering under the GST composition scheme:

  • Taxpayers are not required to maintain all the records
  • Lesser compliance issues as compared to the regular taxpayers
  • Minimal tax liabilities
  • Due to lower tax rates, you get more capital for your business and the liquidity of the capital increases

Demerits

  • A composition dealer cannot carry out the inter-state business transactions
  • Input Tax Credit under GST is NOT available to the composition dealers
  • The composition dealer is barred from supplying the non-taxable under GST goods like alcohol.
  • The taxpayer is NOT eligible to supply the goods through the e-commerce portal.

In Conclusion

In this short article, we have learnt about the basic details of the GST composition scheme.

The decision to opt for the Composition scheme should be taken by the taxpayer after due diligence as the taxpayer here will NOT be eligible to avail of the GST Input Tax Credit.

The taxpayers who are comfortable with the terms of the Composition scheme should only opt for it and not the businesses for which claiming Input Tax Credit is vital to keep the capital flow for the business uninterrupted.

Stay updated; stay ahead!

Until the next time…

Lex comply

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