Composition Scheme is an easy and simple under the new GST regime. If small taxpayers are asked to follow all stringent guidelines , it will be very difficult for them to follow. By understanding the situation, the GST Council has made the provision for Composition scheme for small tax payers.
Composition scheme provides that the small taxpayers, can opt for composition scheme where they will not be compelled to follow guidelines but they have to pay a minimum tax based on the volume.
A tax payer who have turnover below 1.5 crore can opt for composition scheme, the turnover limit for North Eastern states and UttarKhand it is not 75 lakhs.
CGST Amendment act also provides for adding supply of service in the total turnover up to 5 Lakhs or 10 percent of the turnover whichever is higher. For the calculation of total turnover, turnover under the same PAN will be added together and considered.
32nd GST Council Meeting, provides for service providers also can be opted for Composition tax Scheme, and the threshold limit for turnover fixed is 50 lakhs.
Compositions scheme is available to all assesses except the following assessees
• Manufacturer of ice cream, tobacco or pan masala
• Making inter-state supplies
• Businesses which supply goods through an e-commerce operator
• A casual taxable person or a non-resident taxable persons.
Procedure to opt for composition scheme
The assessee should file an application under GST CMP -02 with the authority online. The most important thing is that the form should be submitted at the beginning of every year.
Conditions for availing composition scheme
• No Input Tax Credit can be claimed, and cannot supply GST exempted goods.
• If the assessee have different business under one PAN, all such businesses should be register under the scheme collectively or opt out of the scheme.
• Tax at normal rates to be paid under reverse charge mechanism.
• The word ‘ Composite Taxable Person’ on every notice or signboard displayed prominently at their place of business and also on every bill of supply issued by him.
Conditions for issue of Invoice
A composite dealer cannot issue tax invoice as they cannot collect tax from customers. They need to pay the tax from their hand. The dealer when issuing a bills supply, will clearly mention on the top that, “ composition taxable person, not eligible to collect tax on supplies”
Rates of Tax
COMPOSITION SCHEM APPLICABLE TAX RATES
Manufacturer and traders CGST 0.5% SGST 0.5% TOTAL 1.0%
Restaurants not serving alchohol CGST 2.5% SGST 2.5% TOTAL 5.0%
Other service providers CGST 3.0% SGST 3.0% TOTAL 6.0%
Components of composite tax and source of payment
Composite GST need to be paid from the funds of assessee and it includes
• GST on supplies made
• Tax on reverse charge
• Tax on purchase from an unregistered dealer.
Advantage and disadvantages of composition scheme
• Less compliance procedures and limited tax liability.
• More liquid funds at the hands of assessee as taxes are at lower rate.
• No interstate transaction is permitted.
• No input tax credit available to composition dealers
• Cannot supply exempt goods or goods through an e commerce portal.