GST COMPOSITION SCHEME - A RELIEF FOR SMALL TAX PAYERS

GST COMPOSITION SCHEME - A RELIEF FOR SMALL TAX PAYERS

GST is a compliance heavy regime where every registered person must file at least 3 returns each month. However, there is a Composition Scheme for small taxpayers and its working is explained in this article.
 

Applicability of the Scheme: -

A Person can opt for the Composition Scheme if his aggregate turnover in the preceding Financial Year did not exceed Rs 75,00,000/-

Meaning of Aggregate Turnover:
Aggregate Turnover means that the total value of all Taxable Supplies, Exempt supplies, export and Inter-state supplies of goods or services or both of persons having the same PAN and calculated on an all India basis but excludes the Turnover in which tax is paid by the person on reverse charge basis, Central Tax, State Tax, Union Territory Tax, Integrated Tax and Cess.

Thus, in simple terms, the aggregate turnover includes all Sales of Goods or Services or both on an all India level but does not include any GST. This aggregation or summation should be done on a Permanent Account Number level and on an all India level. For Example, if a Private Limited Company registered in Maharashtra and Gujarat has a turnover of Rs 2500000 and Rs 6500000 respectively, then the Aggregate Turnover for the said company will be Rs 90,00,000/-

Rate of Tax

The Person opting for the Composition scheme incurs tax with respect to its Outward Supplies of goods or services or both on the following rates:

  1. 2% in the case of a Manufacturer (CGST+SGST)
  2. 5% in the case of a Restaurant not serving Alcohol (CGST+SGST)
  3. 1 % in other cases (CGST+SGST)

Conditions to be satisfied to avail composition scheme:

  1. The Person is not engaged in the rendering of services except in a Restaurant as mentioned above: - A person engaged in the provision of services cannot opt for the composition scheme. Also, if a person is rendering services along with manufacturing/trading then he CANNOT take up this scheme. In simpler words, one cannot opt for composition scheme for his trading business and pay regular GST for his service’s business. 
  1. The person should not supply goods non-leviable to tax under GST: - If a person supplies any goods which are not leviable to tax under GST (Like Petrol, Alcohol etc.) then he cannot opt for the composition scheme. It is important to note that a person supplying NIL rated products along with Taxable products can opt for this scheme. The expression ‘ Not leviable to tax’ means such goods on which GST is not applicable (Like Petrol, Alcohol etc.) and not Exempted Goods or Goods on which GST is applicable @ 0%. A perfect example for this would be a Petrol Pump having a convenience store. This petrol pump cannot select the Composition Scheme as it supplies goods which are not leviable to GST (Petrol) even if it also supplies goods which are leviable to GST (Like FMCG Products) 
  1. The Person should not make any Inter-state supply of Goods: - The Person opting for the composition scheme CANNOT make any inter-state supply of Goods. For example: - If a person registered in Maharashtra opts for a composition scheme, then he CANNOT make a sale in Gujarat and if he does, he will have to opt out of the Composition Scheme. 
  1. The person cannot make any supply of Goods through an E-Commerce Operator: - The person opting for the scheme CANNOT make Sale through E-Commerce operators like Flipkart, Snapdeal etc. In other words, if you regularly make sale through E-commerce websites, DO NOT opt for the scheme. It is critical to note that this condition is only applicable if you make a sale through an E-commerce portal and not your own website. If you have your own website and are making sales through it, then you can go for the composition Scheme. 
  1. The person should not manufacture such goods as may be notified: - The person opting for composition scheme cannot manufacture certain NOTIFIED goods. This point has no meaning as of now as no such goods have been notified. 
  1. All registered Persons having the same PAN have to avail this scheme: - If a person having the same PAN has two or more registrations in any state, then he has to compulsorily opt for composition scheme in ALL his registrations. For example: - If a person has two registrations in the state of Maharashtra or one registration in Maharashtra and one in Gujarat and the PAN in both these registrations is the same then must opt for the Composition scheme in respect of both the registrations. 
  1. The person cannot collect any GST: - A person opting for this scheme CANNOT collect any GST on his sale/supply of goods or services or both. In other words, the GST will have to be borne by the person himself and he cannot bill his clients for the same. 
  1. The person cannot claim any Input tax Credit: - The person opting for this scheme is NOT ENTITLED for any input tax credit. 
  1. The person pays tax on Reverse charge basis: - This is one of the major conditions for taking benefit of the Composition scheme. Apart from the tax stated above, the person must pay tax on Reverse charge basis. In other words, in case of supply of goods and services where reverse charge is applicable (Like Advocates etc.) or in case of Supply of Goods or Services by a unregistered Person to a Registered Person, tax will have to be paid by the person opting for the composition scheme. 
  1. The person opting for paying tax under the composition scheme shall neither be a casual taxable person nor a non-resident taxable person.
     

Returns: -

As specified earlier in this article, the compliance for Composition dealers is lesser if compared to normally taxable persons. The due dates for filing GST Returns along with Form numbers are as below: -

Sr. No

Return Form

Periodicity

Due Date

 

 

 

 

1

GSTR-4

Quarterly

18th of next month after quarter

(For Quarter Jan to Mar, due date will be 18th April)

2

GSTR-9A

Annually

31st December of the next Financial year (For 2017-18 due date will be 31st December, 2018)


Thus, as can be seen above, a Composition taxable person will have to file only 5 returns as compared to 37 returns annually for other persons.

Steps to be taken to avail the Composition Scheme on 1st July, 2017

  1. File Form GST CMP-01 within 30 days from the 1st July, 2017 i.e. on or before 31st July, 2017.
     
  2. Make sure that you DO NOT have any Stock (As on 1st July, 2017) purchased from outside of your state in which you are registered or imported from outside of India or from your own branch situated beyond your state.
     
  3. The Good held in stock as on 1st July, 2017 are not purchased from an unregistered supplier or if purchased you have discharged the Tax due on reverse charge basis.

Steps to be taken to opt out of the Composition Scheme:

It may be possible that after taking up the composition scheme, you may want to opt out of it. You will be needed to do the following in that event: -

  1. File Form GST CMP-04 within 7 days from the day you cease to comply with the conditions stated above.
     
  2. File Form GST CMP-04 immediately from the day you want to voluntarily opt out of the scheme.
     
  3. File Form GST ITC-01 showing stock in hand on the day the person ceases to comply with the conditions mentioned above or when he voluntarily opts out of the Composition scheme. This form has to be filed within 30 days from the day of non-compliance or from the day of opting out as the case may be.

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