Chapter 4: Composition Scheme and its Uses

DETAILING OUT THE COMPOSITION SCHEME & ITS USES

Businesses need to ensure compliance with the statutory provisions of the tax systems in place. However, small businesses find it extremely challenging to deal with such requirements of law due to lack of knowledge and expertise. To remove these unnecessary hardships faced by small businesses, the Government introduced the Composition Scheme under GST. The composition scheme is a convenient way for small taxpayers to avoid multiple GST formalities, and pay tax at a fixed rate based on their business’ turnover. This scheme is voluntary and optional.


Conditions laid down for opting into the Composition Scheme

  1. The person opting for composition levy should be a registered person.
  2. The person should not be a casual taxable person, nor a non-resident taxable person.
  3. The aggregate turnover of the registered person in the preceding financial year should not exceed Rs. 1.5 crore (for goods), and Rs. 50 lakhs (for services).
  4. A dealer should not be making inter-state supplies or supply goods that are exempt under the GST regime.
  5. A dealer under the composition scheme cannot claim Input Tax Credit.
  6. The words “composition taxable person” must be mentioned on:-
  7. Every notice or signboard displayed at the place of business.
  8. On every bill of supply issued.
  9. The taxpayer has to pay tax at normal rates for transactions under the Reverse Charge Mechanism.
  10. The person opting into the scheme should not be a manufacturer of ice cream, pan masala, or tobacco, or a businesses which supplies goods through an e-commerce operator.


Opting in and Opting Out

A dealer who is not under the composition scheme may opt for it only from the beginning of the next financial year. The application has to be filed on or before the 31st of March of the previous year.

To opt into the Composition Scheme, a taxpayer has to file GST CMP-02 with the government. This can be done online by logging into the GST Portal.

This intimation should be given at the beginning of every Financial Year by a dealer who wants to opt into the Composition Scheme.


A dealer under composition scheme may be allowed to switch from composition scheme to the normal scheme during the year if they wish to. However, they cannot switch over to the composition scheme again during the same financial year.

If a dealer wishes to opt out of the composition scheme, he will have to give an intimation in Form GST CMP – 04. In addition to this, he must also file Form GST ITC – 01

furnishing the details regarding details of inputs in stocks, semi-finished and finished goods, within 30 days of intimating the option of withdrawal.


GST Rates under the Composition Scheme

Entity

Composition Tax Rates

Manufacturers and Traders of Goods

1%

Restaurants not serving alcohol for human consumption

5%

Other Service Providers

6%


Note:-

  • The rates above comprise of CGST and SGST components that are equally divided in all cases.
  • Effective from 1st April, 2019, the composition scheme has been made available to service providers having an aggregate annual turnover up to Rs. 50 lakh


GST Returns under Composition Scheme

For a dealer under the composition scheme, compliance is easier and far more relaxed.

A Composition taxpayer was required to file a GST Return called GSTR–4 every quarter, as opposed to normal taxpayers who file their GST Returns on a monthly basis. This requirement has now been relaxed even further by the Government, who has notified that GSTR–4 shall now be filed annually by the 30th April of the succeeding financial year, while payment of tax shall be done quarterly.


Other Returns and Forms associated with the Composition Scheme

Particulars

Form Name

To opt into the scheme by provisional GST registration holder(from VAT regime)

GST CMP – 01

to opt into the scheme for GST registered normal taxpayers

GST CMP – 02

Details of stock and inward supplies from unregistered persons

GST CMP – 03

Intimation of withdrawal from the scheme

GST CMP – 04

Show cause notice on contravention of Rules or Act by a proper officer

GST CMP – 05

Reply to Show Cause Notice

GST CMP – 06

Issue of Order

GST CMP – 07

Registration under Composition scheme

Form GST REG-01

Details of inputs in stocks, semi-finished and finished goods

Form GST ITC-01

Intimation of ITC available

Form GST ITC-03