Composition Scheme Under GST- An Analysis

Introduction :

Small businesses are the backbone of the Indian economy. The GST have huge impact on the small businesses to comply as per the rules and regulation under GST. Due to very practical and reasonable reason most of the small businesses are not ready to comply with all the rules and regulation under GST unlike corporate , big and medium businesses. To bring the relief to small business on GST Compliance, composition scheme option has been provided. This will make them burden free from devoting enormous time on GST compliance like rules, regulation, return filling, etc. Under Composition scheme the business man can opt to pay a fixed percentage of turnover with a nominal rate as fees in lieu of tax and be relieved from the detailed compliance of the provisions of law.

Composition Scheme under GST :

Threshold for composition scheme has been increased to 1.5 crore as per the 23rd GST Council meeting held on 10th of November 2017 ( Earlier it was -A taxpayer whose turnover is below Rs 1 Crore can opt in for Composition Scheme. In case of North-Eastern states and Himachal Pradesh, the limit was Rs 75 lakhs. )

To opt in for composition scheme a taxpayer has to file Form GST CMP-01 or GST CMP-02 with the government. This intimation should be given at the beginning of every Financial Year by a dealer wanting to opt for Composition Scheme.

A composition dealer cannot issue tax invoice , instead they can issue a bill of supply . This is because a composition dealer cannot charge tax from their customers. The dealer should also mention “composition taxable person, not eligible to collect tax on supplies” at the top of the Bill of Supply.

GST Payment has to be made out of pocket. The consumer/ the receiver of supplies will not be liable to pay GST to the supplier who has opted for Composition Scheme.

Documents and Invoicing under composition Scheme :

A composition dealer cannot issue tax invoice. The dealer has to issue a Bill of Supply.

The dealer should also mention “composition taxable person, not eligible to collect tax on supplies” at the top of the Bill of Supply.

GST Rates for Taxable Supply Under Composition Scheme :

• Manufacturer and Traders (Goods)- 1%
• Restaurant not serving Alcohol- 5%

Returns under composition Scheme :

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.

As per the 23rd GST Council meeting held on 10th of November 2017 , GSTR 4 for the July to September 2017 quarter will be due only on the 24th of December 2017. The due date for subsequent quarters will be announced by the GST Council at a future date.

Benefits of registering under composition scheme:

• Lesser compliance
• Lower tax rate
• Limited Tax Liability

Limitations of registering under composition scheme:

• No inter-state transactions
• No Input Tax Credit available

Eligibility Criteria to opt for GST Composition Scheme :

The following criteria to be fulfilled to opt for GST Composition Scheme:

1. The taxpayer cannot be a casual taxable person nor a non-resident taxable person
2. The goods held in stock by the taxpayer on the date GST came into force should not have been purchased in the course of inter-state trade or commerce or imported from a place outside India or received from a branch of the business situated outside the State or from the taxpayer’s agent or principal outside the State.
3. The goods held in stock by the taxpayer has should not have been purchased from an unregistered supplier and if purchased from an unregistered supplier, the taxpayer must then have paid GST on the purchase on reverse charge basis.
4. On the inward supply of goods or services or both, taxpayer should have paid tax under reverse charge basis.
5. Taxpayer has to pay tax at normal rates for transactions under Reverse Charge Mechanism
6. The dealer cannot supply GST exempted goods
7. The taxpayer should not have been engaged in the manufacture of goods as notified under clause (e) of subsection (2) of section 10, during the preceding financial year.
8. 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.
9. The taxpayer must mention the words “composition taxable person, not eligible to collect tax on supplies” at the top of the bill of supply issued by him.
10. The taxpayer has to mention the words “composition taxable person” on every notice or signboard displayed at a prominent place at his principal place of business and at every additional place or places of business.
11. No Input Tax Credit can be claimed by a dealer opting for composition scheme
12. The taxpayer can only make intra-state supply (sell in the same state) i.e. no inter-state supply of goods.

Composition Scheme – Is it really Beneficial -An Analysis !

As mentioned, to avail the befit of Composition levy, the person has to fulfil all the mentioned conditions. Failure to any of the mentioned criteria will lead to keep him out of the benefit provided under composition scheme. Let’s have a look to the given condition and a analysis :

More than 50% of MSME are in Rural area in India. SMEs contribute a good portion in India’s total export . It’s very clear that the high quality products manufactured by the SME and MSME are very famous across India and other part of world. High quality product with beautiful design by SME and MSMEs attracts the customer from outside. Product like Kanchipuram Silk sari from Tamil Nadu, Sambalapur Sarees from Odisha, Banarasi Sari from U.P., Leather product manufactured in Chennai, Kolkata, Kanpur, Jalandar, Bengaluru, Delhi and Hyderabad, Nilgiri Oil from Tamil Nadu and Kerala, Homemade Chocolate from Tamil Nadu and Kerala, Cashew nut from Maharashtra, AP, Telengana, Odisha, Kerala, Karnataka, Tamil Nadu, Goa, West Bengal, Jharkhand , etc…. are very famous across India and other part of world . Even though turnover of these manufacturers are having turnover below 1 Crore they will not be able to take the befit under Composition scheme , as they do the sale transactions across India and other parts of world ( Intra State , Interstate Transactions ) due to their high quality products. Govt need to relook the provision under Composition scheme to give the benefit to the SME and MSMEs.

Composition Scheme under GST: Key Features, Eligibility & Benefits