GST Composition Scheme

The government has launched a composition scheme for businesses that are involved in the unorganised sector and have a turnover of less than 1.5 crore per Annum.

Composition scheme under Goods and Services Tax (GST) is basically for small businesses belonging to the unorganized sector with an aggregated turnover of less than Rs 1.5 crore. According to the 32nd GST Council Meeting, a new composition scheme has been together.

The composition scheme is meant for those suppliers who are either providing independent services or a combination of both goods or services and has a turnover of up to Rs 50 lakhs in the preceding financial year. The tax rate for this scheme is 6% (3% CGST+ 3% SGST).

Eligibility for composition scheme

Any businesses whose turnover is below Rs 1 Crore can opt for composition scheme. In case of taxpayer belonging to North-Eastern states and Himachal Pradesh, the limit is now Rs 75 lakh.s

What are the features of composition scheme?

Some of the important features of composition scheme:-

  1. Manufacturers of goods, restaurant owners and dealers (applicable only to restaurants that do not serve alcohol ) can opt for composition scheme.
  2. A compounding dealer cannot collect the tax or claim an input tax credit for the supplies delivered to their clients. Due to this reason, bills of supply are issued for sale transaction, instead of tax invoices.
  3. Business owners registered under this scheme pay tax at a much lower rate as compared to other business owners that are not registered under the act.

Composition Rate for Different Type Of Businesses

The composition rate for a different type of businesses are as follows: -

  • In the case of traders and manufacturers, the composition rate is said to be of 1%
  • In the case of the restaurant sector, the composition rate is said to be of 5%
  • Any registered business, under composition scheme, will have to file one return each quarter by 18th of the month following that quarter.
  • If a business owner has 5 different business registered with GST authorities under the same PAN, he/she must enroll all his businesses under the composition scheme or would have to opt-out of the composition scheme.
  • The compounding businessmen will be taxed at the normal GST rate fixed by the government, under the reverse charge mechanism

Circumstances for opting for composition scheme under GST

The conditions for opting for composition scheme under GST are as follows:

  • The businessperson opting for composition levy should be a registered person
  • Turnover of a registered person in the preceding financial year should not exceed Rs 50 lakh.

Following class of registered persons would not be entitled to opt for composition levy in lieu of tax payable by them:

  • Any businesses engaged in the supply of services other than the supplies mentioned.
  • A person making any supply of goods which are not taxable under the GST Act.

Following goods which are not leviable to tax under the GST Act are as follows: -

  1. Petroleum
  2. High-Speed Diesel
  3. Motor Spirit
  4. Natural Gas
  5. Aviation Turbine Fuel
  6. Alcohol For Human Consumption

Persons who are ineligible For Composition Scheme Under GST

Taxpayer supplying Exempt Supplies

Exempt supplies are the goods or services sold by the companies free from Goods and Services Tax (GST). No GST will be applied to these goods and services.

Hence taxpayer supplying such goods will not be eligible for composition scheme under GST.

Manufacturer of Ice-cream, Pan Masala or Tobacco

Manufacturer of ice-cream, pan masala or tobacco products will not be eligible for composition scheme under GST.

Supplies of services other than restaurant related services

Services such as restaurant-related where food is served directly to the customer’s table are not eligible under GST.

Disqualification and Penalty

  1. If the tax authorities find that a business or company is wrongfully registered or not eligible, they have a right to disqualify the business from the benefits of the composition scheme.

  2. In a certain scenario, they might also demand a penalty that may go up to the amount equal to the tax amount owed to the government.

  3. If a business is involved in the late filing of GSTR-4; the business owner or the company director will be charged Rs 100 per day up to the maximum amount of Rs 5000/-.