Composition Scheme under GST

The GST regime in India provides for composition scheme for small dealers. The basic principle underlying the composition scheme is to minimize the burden of compliance for small taxpayers, However, he shall not be eligible to issue a tax invoice and cannot utilize the credit of input tax paid as a result thereof. Let us examine the whole scheme.

Who can opt for Composition Scheme?

Businesses dealing only in goods can only opt for composition scheme. Services providers have been kept outside the scope of this scheme. However, Restaurant Sector Taxpayers may also opt for the scheme.

This holds true if your annual turnover in preceding financial year is below Rs 75 Lakhs. However this limit is Rs.50 lakh in respect of the following Special Category States namely:

1.		Arunachal Pradesh,
2.		Assam,
3.		Manipur,
4.		Meghalaya,
5.		Mizoram,
6.		Nagaland,
7.		Sikkim,
8.		Tripura, and
9.		Himachal Pradesh

Who cannot opt for this scheme?

Subject to turnover limits prescribed a following registered person cannot opt to pay under composition scheme;

     

     A.   If he is engaged in making any inter-State outward supplies of goods.

     B.   If he is engaged in making any supply of goods which are not leviable to tax under this     Act; hence, suppliers supplying alcoholic liquor, petroleum crude, high speed diesel, motor spirit (petrol), natural gas and aviation turbine fuel are not eligible for composition scheme.

     C.   If he is engaged in making any supply of goods through an electronic commerce operator. 

     

     D.   He is not a manufacturer of such goods as may be notified by the Government on the recommendations of the Council. The following goods notified by govt.;

     (i)  Ice cream and other edible ice, whether or not containing cocoa (Classification Tariff 21050000)

     (ii)   Pan Masala (Classification Tariff 21069020)

     (iii)   Tobacco and manufactured tobacco substitutes (Classification Chapter 24)

What is the tax rate applicable on a composition dealer?

A registered taxpayer, who is registered under the Composite Scheme will pay tax at a rate not more than 2% (CGST+SGST) for manufacturer, 5%(CGST+SGST) for restaurant sector and 1% (CGST+SGST) for other suppliers i.e. traders of the turnover.

Do Composition Dealers have the option to avail Input Tax Credit?

No, a Composition Dealer is not allowed to avail input tax credit of GST paid to their supplier.

Can a Composition Dealer issue Tax Invoice?

No. Since a Composition Dealer is not allowed to avail input tax credit, such a dealer cannot issue a tax invoice as well. A buyer from composition dealer will not be able to claim input tax on such goods. So such dealer needs to issue bill of supply.

Returns to be filed by Composite Scheme dealer?

They are required to furnish only one return i.e. GSTR-4 on a quarterly basis and an annual return in FORM GSTR-9A.