The composition scheme which we are witnessing under GST is a carry over from earlier taxation law and was implemented under the respective State VAT Laws with conditions applied on eligibility for the scheme accordingly. Alternatively GST composition scheme assures greater compliance without the requirement of maintaining records. This system was missing in Service Tax laws in earlier tax regime.

Any taxation system whether be Direct Tax or Indirect Tax levy each taxation system  has got some prescribed rules or regulations which must be followed by the individuals, taxpayer or business owners. Keeping up of records and documents properly, submission or filing of returns timely, simplified generation and periodic payment of taxes are some of the essential elements of taxation system for corporate taxpayers. However, business enterprises and owners are facing difficulties to cooperate with such responsibilities of law. It happens just because of lack of knowledge and majority of people is not aware of the taxation system.

How does a composition scheme look like : This can be divided into components for better understanding. All these pieces of information could tell us the story behind the composition scheme.

Am I eligible for this scheme : This piece of information decides whether you could apply for this scheme or even choose it. Not all taxpayers are eligible to register under the GST composition scheme. And only those taxpayers or people whose annual turnover less than or below Rs 1.5 crore in a financial year and also for the taxpayers who are providing both goods and services (where services are not exceeding 5 lakhs limit). The turnover criteria limit for special category states, except Jammu & Kashmir and Uttarakhand,  is now increased to Rs 75 Lacs. While the turnover threshold for Jammu & Kashmir and Uttarakhand has been hiked to Rs 1 crore, only those taxpayers falling under this swing must register under the GST composition scheme.

How do I activate this scheme for my GSTIN Number :  Law says the existing taxpayers must intimate in Form GST CMP 01. And it is an form of prior notification stating that I comply with all the conditions and been eligible for this scheme I do decide to opt for this scheme. For new registrations under this scheme GST REG-01 Form is enough to be filed and no prior notice needs to be given. And for persons registered under GST making a switch to Composition Scheme from Regular Scheme Form GST CMP – 02 is required to be filed within the time prescribed along with an Form GST ITC 03 stating the inputs lying in the stock prior to such switching.

What are the returns I am going to file to file under this Composition Scheme if I opt for this scheme : Are the returns more bulkier here than the normal returns under normal tax payers scheme. Do I need to maintain quantum of documents and records just as in the case of normal tax payers scheme. It’s not so and this is the only piece which makes the composition scheme attractive as a taxpayer under this scheme is required to maintain minimal records and also required to file just one return and that too on a quarterly basis. The GST return form for composition tax payer is GSTR 4.

What would be my area of operation under GST Composition Scheme : Generally there are no restrictions for a normal tax dealer. A normal tax dealer can make interstate supplies and also receive inter state supplies. But this is barred under GST Composition Scheme where the composition scheme taxpayer could only receive inward supplies from other states but cannot make outward inter-State supplies. Meaning his area of operations or restricted to intrastate only.

Characteristics which a GST Composition Invoice must follow :  The provisions under CGST Act for issue of invoice for supply of goods and or Services states that “If you are  a taxpayer  paying tax under composition scheme, you are not required to issue a tax invoice but a BILL OF SUPPLY. And a taxable person to whom this provisions apply  shall not collect any tax from the recipient on supplies made by him nor shall he be entitled to any credit of input tax. And such tax invoice must contain following details

➢       Details of supplier/seller :

❖       Name

❖       Address

❖       GSTIN

➢       Details of buyer (if buyer is a registered person :

❖       Name

❖       Address

❖       GSTIN

➢       Details of goods supplies :

❖       HSN Code

❖       Description of product

❖       Value of supply of goods

➢       Other Details : Bill of supply number should be consecutive serial number, in one or multiple series, containing alphabets or numerals or special characters -hyphen or dash and slash symbolised as “-” and “/”respectively, and any combination thereof, unique for a financial year.

It should also contain date of issue and should be signed by supplier or his authorized representative. A Bill of supply can alternatively be signed using a digital signature certificate (DSC).

Eligibility over my tax credits lying in stock and purchases : The GST law poses certain restrictions over the composition scheme and one such restriction is non availability of input tax credit on purchases and stock. This restriction is placed considering the benefits of flat taxation structure under this scheme. A composition taxpayer has to pay tax on his aggregate annual turnover at flat rate of 1%. So considering this benefit, input tax credit is not allowed to be carried forward in returns of composition tax payer. And from accounting point of view so much of the tax paid by a composition tax payer on his purchases will form part of cost of purchase.

At what rate I will paying tax and on what base :  This could be understood from the following table.

Applicable GST Rates under Composition Scheme
Type of business CGST SGST TOTAL
Manufacturers and Traders 0.5% 0.5% 1%
Restaurants not serving alcohol 2.5% 2.5% 5%
Services providers are not eligible for Composition Scheme

What forms part of Composition Schemes Annual Turnover : Earlier it was a provision to pay composition GST even on the exempted goods but now after 1st January 2018, the GST will be only payable on the taxable goods. So now your GST tax calculation turnover will only include taxable supplies alone.

What are the penalties under the composition scheme for knowingly and wrongly availing this scheme : As we know that the registration under this scheme is optional i.e., at the discretion of the taxpayer. And such discretion demands a greater degree of Self Assessment and care because where if the taxable person even after know that he is not eligible to opt this scheme, opts for this scheme, then the tax authorities can charge a penalty equal to the amount of tax on such person along with his tax liability. Be careful when availing this scheme and paying taxes. The penalty will be imposed according to the provision of this act for providing incorrect data under the composition scheme.

The augmentation process that is carried out in composition scheme under GST either by way of sledging on the Composition Tax rate, or by way of increasing the threshold limit for registration under composition scheme, or by way of exclusion of exempted turnover from the aggregate turnover for composition tax payer, the government is all clear in setting the things right for SMEs and to really transmit the benefits to them. And speaking of transmission Tally.ERP 9 is a ERP segment player which transforms your return with a assurance stamp of GST Complaint by the tools it provides you in its software features. One can now match their inward supplies or purchases with the GSTR 4 data from the Tally’s ERP Software. And you can also prepare bill of supply containing all the characteristics that GST law demands for a issuance of bill of supply from Tally.ERP 9 Software. All these benefits shall accrue to a composition tax payer as he is not to worry about being GST Compliant all the time as this is taken care by the software.

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  1. Aryawerdhen says:

    i have a query. if a sweet mart which manufactures and sells sweets and namkins and donot provide any other services like sitting and serving, water etc like a restaurant, than under composition at what rate gst will be levied to him.?

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