Goods and Services Tax is set to bring along a new level of business compliance. Large organizations have the requisite resources and expertise to address these compliances. However, compliances of the GST Law can be quite cumbersome for small businesses. To cater to the needs of the small businesses, a composition scheme has been introduced under the GST regime. Such schemes were prevalent under the earlier VAT and excise law as well.
Who can opt for composition scheme?
- A trader of goods Dealer
whose Aggregate annual turnover does not exceeds Rs. 75 Lakh
The benefit of the scheme is not available to a person who supplies goods or services inter-state or supplies goods through E-commerce operator or is also engaged in supply of services. Thus effectively the scheme can be used by small time shopkeepers, manufacturers or restaurants.
Further, such a person is not entitled to avail input tax credit of GST paid on his purchases / expenses.
Compliance under Composition scheme
Tax Rates Applicable
1% (0.5% CGST + 0.5% SGST)
2% (1% CGST + 1% SGST)
5% (2.5% CGST + 2.5% SGST)
- Persons migrating from to GST law from VAT and desirous for opting for composition scheme, have to file Intimation in prescribed Form online by 16th August,2017 and are required to furnish a statement within sixty days of the details of stock held immediately before opting for scheme.
- Person going for new registration under GST can give intimation in the registration form itself i.e. there is no need to intimate in a separate form. No separate intimation is required to be filed every year once opted for the scheme
- From next year onwards, one desiring to go for composition scheme will be required to opt for this scheme before start of a financial year. One cannot opt for this scheme in mid of the year. Shifting from composition scheme to regular scheme in mid of the year is possible but not vice versa.
- Quarterly return within 18 days from the end of the quarter in Form GSTR-04
- Tax to be paid as per Form GSTR-4A generated after submission of GSTR-04
- Annual Return in Form GSTR-9A up to 31st of December of the end of F.Y. following the F.Y. for which the return has to be submitted.
Tax Credit, Invoices & Reverse charge
A Composition Dealer cannot charge tax on his invoice while supplying goods & services. He is required to issue a Bill of Supply mentioning the value of goods / services. Since no GST is mentioned on his invoice, the recipient is also not eligible to avail credit of GST paid by the composition dealer. To take an example:
A trader who has opted for composition scheme has a turnover of 50 lakhs. He has to pay total GST of Rs. 50,000 i.e. 1% of his turnover.
A composition dealer is not freed from the provisions related to reverse charge mechanism. Similar to a regular dealer, he is also required to pay tax under reverse charge (including where he procures goods or services from an unregistered person).
Merits / Demerits of the Scheme
Merits of Scheme
As against 3 returns in a month for normal GST registered person, a composition dealer only has to file 1 return in three months. Further, tax is to be paid only on the total turnover at the rate of 1%, 2% or 5%. Thus he is freed from maintaining records of input tax credit provisions and product classification matters.
Demerits of Scheme
Restriction on supply of goods outside the State is the biggest restriction. Plus the scheme is not available for service providers. Non availability of input tax credit is understandable, but requirement to pay tax under reverse charge can be a big deterrent to this scheme. A person using this scheme can practically make only B2C supplies, as for B2B supplies, his prices will definitely be more than a regular dealer.