What is the meaning of Composition Scheme under GST?
Section 10 of CGST Act, 2017 specifies the basic requirement towards eligibility and applicability of the Composition scheme. Intent of this scheme is to facilitate small Business personnel towards payment of taxes, periodicity of filing simple returns and less burden of Books of Accounts maintenance.
Who can opt for Composition Scheme under GST?
Individuals selling goods and having annual turnover up to Rs1.5 crore (Rs 75 lakh for special category States) in a financial year can opt for composition scheme under GST.
A composition dealer can also supply services to an extent of ten percent of turnover, or Rs.5 lakhs, whichever is higher.
Note: Turnover of all businesses registered with the same PAN should be taken into consideration to calculate turnover.
Who cannot opt for Composition Scheme under GST?
The following categories of suppliers cannot avail the benefit of composition Scheme:
- A person making interstate supplies.
- A person making the supply of services except for those supplying food and beverages like hotels, outdoor catering etc.
- Supplier selling through E-Commerce operator.
- A manufacturer of following notified goods such as Ice cream, Pan Masala, tobacco etc.
- Supplier who supply exempt goods.
- Casual taxable person or a non-resident taxable person.
What are the conditions for availing Composition Scheme under GST?
The following conditions must be satisfied in order to opt for composition scheme:
- No Input Tax Credit can be claimed by a dealer opting for composition scheme.
- The dealer cannot supply goods not taxable under GST such as alcohol.
- The taxpayer has to pay tax at normal rates for transactions under the Reverse Charge Mechanism.
- 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.
- The taxpayer has to mention the words ‘composition taxable person’ on every notice or signboard displayed prominently at their place of business.
- The taxpayer has to mention the words ‘composition taxable person’ on every bill of supply issued by him.
- As per the CGST (Amendment) Act, 2018, a manufacturer or trader can now also supply services to an extent of ten percent of turnover, or Rs.5 lakhs, whichever is higher.
What are the GST tax rates under the composition scheme under GST?
In Goods and Service Tax varied composition rates have been prescribed for different suppliers. The following are the tax rates under composition scheme:
What are the advantages of Composition Scheme under GST?
The following are the advantages of registering under composition scheme:
- Lesser compliance (returns, maintaining books of record, issuance of invoices)
- Limited tax liability
- High liquidity as taxes are at a lower rate
What are the disadvantages of composition scheme under GST?
All good things come with a price so does Composition scheme. With its manifold benefits composition has the following disadvantages:
- No Input Tax Credit is available.
- Cannot issue taxable invoices which means the burden of composition tax cannot be passed onto the consumer.
- Cannot give tax credit benefit to others.
- No good shall lie in the stock of composition taxpayer which he purchased before entering into the scheme of composition.
