Goods and Services Tax (GST) introduced to the Indian economy to bring a new regime of business compliance by subsuming most of the indirect taxes such as excise, VAT, service tax etc. In order to minimize the tax compliances for Start-ups and Small and Medium Enterprises, the government has introduced the concept of Composition levy under GST.
At present, the following goods are not liveable to Goods and Service Tax:
Understanding Composition Scheme under GST
Composition scheme under GST is a taxation mechanism designed for small businesses with an aggregate turnover of less than Rs. 100 lakhs (less than 75 lakhs for North Eastern states). A taxable person who is registered under this scheme is called composition taxable person, and have to pay tax at the predetermined fixed rate. This scheme was introduced with the objective of making tax compliance simpler and cost-effective for the taxpayers.
Specified businesses with an aggregate turnover of less than Rs. 100 lakhs (less than 75 lakhs for North Eastern states) are eligible to opt composition in GST within their own state.
However, the scheme restricts the following person from availing the composition scheme:
Various rules in composition scheme of GST
The rate of Composition Scheme under GST
The Composition scheme rate under GST shall not be exceeded:
However, the above-mentioned rates are only in respect of CGST Act, the equivalent rates are prescribed under the SGST/UTGST Act. Therefore, the effective rates would be 5% for the supplier making the supply of food etc., 1% for manufacturers and 1% in case if other suppliers.
How to apply for GST composition scheme?
When a taxable person wishes to opt for composition scheme under the GST, he should file the application with the tax authorities at the beginning of the financial year (1st April). The registration process under GST is a PAN-based process.
The registration process under GST is divided into 2 categories:
1.Where a taxable person registering under GST for the first time
In this case, the taxable person should file FORM GST REG-01. He should file all the information and select “Registration as a composite business owner” option under Section 10 in Part B of the form.
2.Where a taxable person already registered under GST
When a taxable person switches from normal provisions to the composition scheme under the GST, it required to pay an amount equal to the input tax credit is available as input tax credit. The calculation of the payable input tax credit will be on the basis of the amount of input materials, semi-finished and finished goods held in stock.
The registered person will require to file FORM GST CMP-02 in order to register under the composition scheme. Apart from this, he shall also furnish details of Input Tax Credit in FORM GST ITC-3 in respect of inputs, semi-finished or finished goods (within 60 days from the commencement of the financial year) held in stock.
Invoicing Rules under composition scheme GST
Every registered taxable person under the composition shall mention the words- “composition taxable person, not eligible to collect tax on supplies” at the top of the bill of supply issued by him. The rationale behind this compulsion is that the composite taxpayer is ineligible to collect tax from his buyer. The composition taxable person shall be liable to pay tax on the supplies made by him at the special rates decided for the composition taxable person.
Returns under composition scheme
Under the normal provisions of GST, a registered person is required to file 3-4 returns on a monthly basis. On the contrary, a composition taxpayers person will be required to file a GST return once every quarter. GSTR 4 is required to be filed by 18th of the month following the relevant quarter.
In addition to this, a registered person under the composition scheme is required to file the first GST return for the period beginning from the date on which he becomes a composition taxable person till the end of the quarter in which the registration has been granted. Apart from this, an annual return GSTR 9A is also required to be furnished by the 31st December of the next financial year.