Goods and Service Tax Act, 2017 undoubtedly simplified the tax structure in the nation by promoting ‘One Nation, One Tax, and One Market’ but it made the formalities complicated for the small scale traders. Getting you GSTIN, filing GST Returns on time, GST Renewal and many other formalities peeped in. The GST Composition Scheme is one of them.

GST Composition Scheme is actually a simple scheme under GST for taxpayers. It states that small taxpayers can get rid of tedious GST formalities and pay GST at a fixed rate of turnover. This scheme applies for any taxpayer having a turnover of less than Rs.1.5 crore.

Who is Eligible to opt for Composition Scheme?

1. For manufacturers and traders: Manufacturers and traders, with aggregate turnover till Rs.1.5 crore in the preceding financial year or in a current financial year can opt for composition scheme.
2. For special category states: (Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Uttarakhand) threshold limit of aggregate turnover is INR 75 Lacs instead of INR 1.50 Crores.

3. For restaurants not serving alcohol:  For restaurants, not serving alcohol, for the purpose of opting composition scheme, aggregate turnover must not exceed INR 1.50 crores during the preceding financial year.
4. For Service providers:  From 01.04.2019, dealers involved in the supply of services were also allowed to opt for composition scheme.

Who is not eligible for Composition Scheme?

1. Producer of pan masala, or tobacco, ice cream
2. Non-resident taxable person 
3. Casual taxable person: Casual taxable persons are those who occasionally involves in the supply of goods or services in state and such a person has no fixed place of business in such state.
4. The person supplying goods through an e-commerce operator
5. Taxpayer supplying exempt supplies
6. Any person engaged in manufacturing of Ice Cream, Pan Masala and Tobacco Products.

Tax Rate for Composition Scheme: –

Benefits of Composition Schemes

1. Reduced tax payments: Tax rates are lower as compared to regular GST rates.
2. Lower compliance requirements:  Only GSTR-4 is to be filed on a quarterly basis.
3. Increased liquidity of the Taxpayer.
4.  Less paperwork for GST composition scheme.

Drawbacks of Composition Schemes

1. No Input Tax Credit can be availed.
2. No Collection of Tax can be collected from the customers.
3. No Composition Scheme for Interstate transfer.

Details to be mentioned by Composition Dealer 

In Composition scheme, a dealer has to issue a Bill of Supply. Composition dealer is required to mention “Composite Taxable Person” on all of its invoices.

Details to be mentioned in the bill of supply are as follows –

1. Name, address, and GSTIN of the supplier
2. A consecutive serial number which is a unique number for every financial year
3. Date of issue
4. If the recipient is registered then the name, address, and GSTIN of the recipient
5. HSN Code of goods or Accounting Code for services
6. Description of goods/services
7. Value of the goods/services after adjusting any discount or abatement
8. A signature or digital signature of the supplier or his authorized representative

Procedure for opting Composition Scheme

1. Obtaining fresh registration

2. Switching from Normal scheme to Composition Scheme

• GST CMP-02 (Intimation of willingness to opt for Composition Scheme)

• GST CMP-03 (Intimation of details of stock on the date of opting for composition levy)

• GST ITC-03 (Details of stock and inward supplies from registered and unregistered  persons)

 Penalty and interest in GST Composition Scheme:-

• Not filing Return on Due Date 

If Taxpayers do not file their returns within specified due dates mentioned, he is obliged to pay a late fee of Rs. 50/day (in case of any tax liability) and Rs. 20/day (in case of Nil tax liability) subject to a maximum of Rs. 5000/-, from the given due date to the actual date when the returns are finally filed.

• Interest on late payment on taxes by composition dealer

1. Interest will be applicable at the rate of 18% if the payment is not done within the due date.
2. A rate of 24% interest will be applicable in the case when a taxpayer claims excess of input tax credit or makes a reduction in the output tax liability.