COMPOSITION SCHEME OF GST – FEATURES, TRANSITION PROVISIONS AND DRAWBACKS

What is a Composition Scheme under the GST Act?

The composition scheme allows a registered person to pay a certain percentage of tax of their turnover.

Eligibility – Aggregate yearly Turnover does not exceeds

 For North Eastern and Hilly States - Rs. 50 Lakh

For other States - Rs. 75 Lakh

Tax rate –  

Traders - 1 %

Manufacturer - 2 %

Restaurant - 5 %

Registration:

Taxpayers need to make voluntary registration every year for getting the benefits of GST Composition Scheme. However, if the taxpayer crosses the minimum turnover limit, then he will be transferred to regular scheme.

Any existing taxpayer not under Composition Scheme may choose to opt for it (subject to being qualified), only from the beginning of the next Financial Year. The application will have to be filed on or before 31st March of the Previous Year so that returns can be filed accordingly.

Dealers under Composition Scheme may be allowed to switch over to normal scheme even during the year if they want to. However, they cannot switch over to Composition Scheme again during the same Financial Year.

Quarterly returns –

A registered taxable person paying tax under the provisions of Composite Scheme shall furnish a return for each quarter in GSTR-4 within eighteen days after the end of relevant quarter.

Penalty –

If a taxable person is found not eligible for this scheme then the tax authorities can impose a penalty equal to the amount of tax on such person along with his tax liability.

Transition from Composition Dealer to Normal Dealer –

When a taxpayer ceases to pay composition tax and becomes liable to pay tax as a regular taxpayer under GST, then he is eligible to take Input Tax Credit in respect of inputs held in stock and inputs contained in semi-finished and finished goods held in stock as on the day immediately preceding the day from which he becomes liable to pay tax under regular scheme.

Transition from Normal Dealer to Composition Dealer –

When a taxpayer liable to pay tax as a regular taxable person switches over as a taxable person for paying tax under section 8 (GST Composition Scheme), then he needs to pay an amount by way of debiting in the electronic credit /cash ledger equivalent to Input Tax Credit in respect of inputs held in stock and inputs contained in semi- finished and finished goods held in stock as on the day immediately preceding the day of such switch over.

Drawbacks of Composition Scheme –

Input Tax Credit:

As per section 16, those goods and services on which Composition Tax has been paid under section 8 do not qualify for Input Tax Credit. On one hand, he is saving the compliance cost as well as the hassle of filing 3 returns every month, but on the other hand he is also foregoing his input tax credit and paying tax on his annual turnover from his own pocket, which again is a heavy cost burden.

Excludes Intra-state Supply

Local suppliers, i.e., within a state can only take advantage of this scheme. Sale outside the state does not cover under the composite scheme.