What is composition scheme of GST, who is eligible and how to opt for it However in order to opt for it, an individual has to satisfy certain eligibility criteria and others
The burden of complying with various Goods and Services Tax (GST) law provisions, GST return filing, etc. can take up significant time and financial resources of small individual businessmen and professionals. Hence, to lower the burden of legal compliance, a separate scheme under GST was introduced by the government. This scheme is called the 'composition scheme under GST'. However, not every GST registered person can opt for this scheme.What benefits does the composition scheme under GST offer?
The composition scheme under GST requires businesses to file GST returns on quarterly and annual basis. This is different where monthly GST return filing is mandatory."Only two forms are to be filled by businesses under composition scheme of GST. These are GSTR-4 (annually) and GST CMP-08 (quarterly)," says Sanjay Chhabria, CA & Director, Indirect Tax, Nexdigm, a business and tax consultancy company.
"The Composition Scheme under GST offers the benefit of paying a fixed percentage of their turnover as tax instead of the regular GST rates applicable to various goods and services," says Apoorv Phillips, Senior Associate, Sirmacs Consultancy Services, a Delhi based business and indirect tax consultancy firm.
The GST rates under the composition scheme are different from the regular GST scheme. For example, Ektha has opted for the composition scheme and is selling Ghewar, a Rajasthani sweet. Being a goods trader, the tax rate as per the composition scheme under GST is 1% on Ghewar, compared to the 5% GST rate that is normally applicable for sweets.
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Comparison of GST rates in composition scheme and regular GST.
Source: Sirmacs Consultancy
Who can opt for the composition scheme under GST?
"Individuals selling goods and having annual turnover up to Rs 1.5 crore (Rs 75 lakh for special category States) in a financial year can opt for composition scheme under GST. In case of service providers (other than restaurants), this turnover threshold limit is fixed at Rs 50 lakh," says Chhabria. For restaurants the turnover threshold limit is Rs 1.5 crore.For example, Ramesh from Gwalior has a handicraft store. This financial year he expects his turnover to be around Rs 55 lakh. So, Ramesh can opt for the composition scheme under GST this financial year since his turnover is expected to be below Rs 1.5 crore.
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When a business's annual turnover crosses the threshold rate or fails to satisfy any of the conditions for the composition scheme, he/she is required to file an intimation for withdrawal from the scheme. This withdrawal application is further required to be approved by the proper officer. If approved, then only Regular GST norms will be applicable on selling of goods and services.
How to opt for composition scheme under GST?
"An individual can opt for composition scheme under GST either at the beginning of the financial year by filing GST CMP-02 form or at the time of registration for GST. One cannot opt for a composition scheme under GST during the middle of the year," says Chartered Accountant Sandeep Agrawal, director, TeamLease Regtech, regulatory technology compliance company.What you lose in composition scheme under GST?
The composition scheme offers lower GST rates and less compliance burden. Phillips says, an individual loses certain benefits which are as follows:Individuals opting for the composition scheme under GST cannot claim Input Tax Credit (ITC) on their purchases.They cannot issue a tax invoice. They are required to issue a bill of supply. This is because these individuals are barred from collecting GST from their customers. The issued bill of supply will have the description of 'composition taxable person, not eligible to collect tax on supplies.' They are required to register all their existing different businesses under the same PAN. For example, an individual having video editing and flower-supplying business must be registered under the same PAN for the composition scheme.
"For those individuals having multiple businesses under the same PAN, there is a chance that they might be forced out of the composition scheme under GST due to breach of the turnover threshold limits for each business. This is because GST laws mandate that the turnover of all the businesses registered under the same PAN must be below the threshold of the composition scheme and they all should be included under the composition scheme if any one of the businesses was registered under the composition scheme," says Philips.
Who cannot opt for composition scheme under GST?
Despite meeting the annual turnover criteria, not all individuals can opt for the composition scheme under GST. According to Phillips, the following individuals cannot opt for the composition scheme:If goods and services are supplied between different states. Manufacturer of specific goods. The GST council from time to time updates the exclusion list for the composition scheme under GST. It is based on the recommendations of the committee and nature of the goods.Individuals registered under the 'casual taxable person' category in GST. A casual taxable person is an individual who wants GST registration for a few temporary days. These individuals are usually selling goods for a particular event.NRI registered under GST.Individuals selling goods on an e-commerce who also collects tax collected at source (TCS). For example, Vikram is a seller of Utensils on Flipkart. So before making paying him for the goods sold, Flipkart will deduct TCS from that amount."Do note that this restriction for those who sells goods on an e-commerce portal/operator who also collects TCS has been removed with effect from October 1, 2023.," says Philips.
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This story originally appeared on: India Times - Author:Faqs of Insurances
