Composition dealer under GST
Composition Dealer Under GST – A Simple Guide for Small Businesses
In this post, we will discuss who a composition dealer is under GST, how the scheme works, and whether it’s the right fit for your small business.
Let’s look at each section in detail:
- Who is a Composition Dealer?
- Eligibility for Composition Scheme
- Registration Process for Composition Dealer
- GST Rates for Composition Dealers
- Returns & Compliance for Composition Dealers
- Benefits of Composition Scheme
- Limitations of Being a Composition Dealer
- How to Opt for the Composition Scheme?
- Conclusion
- FAQs
Who is a Composition Dealer?
A composition dealer is a small business registered under GST who has chosen the composition scheme. This scheme is meant to make GST easy for businesses with turnover up to ₹1.5 crore. Instead of filing detailed GST returns, they can just pay tax at a fixed rate on their total sales.
Eligibility for Composition Scheme
To be eligible under this scheme, the person must meet the following conditions:
- He or she is only doing restaurant services, nothing else.
- He or she doesn’t sell any goods that are not taxable under GST.
- He or she doesn’t sell goods to customers in other states.
- He or she doesn’t sell goods through online platforms like Amazon, Flipkart, etc.
- He or she is not making or selling items like ice cream, pan masala, tobacco, etc., which the government has restricted under this scheme.
Registration Process for Composition Dealer
How to register as a composition dealer under GST:
- First, go to the GST portal (www.gst.gov.in) and click on “New Registration.”
- Select “Composition” as your taxpayer type.
- Fill in your PAN, mobile number, email ID and Aadhaar details.
- Upload the required documents – like proof of business address, bank details, and a passport-size photo.
- Submit the form.
Once your application is approved, you can start paying tax under the composition scheme.
That’s it. Process is easy and doesn’t take much time if all documents are ready.
GST Rates for Composition Dealers
|
Type of Business |
CGST |
SGST |
Total GST |
|
Manufacturers & Traders of Goods |
0.5% |
0.5% |
1% |
|
Restaurants (not serving alcohol) |
2.5% |
2.5% |
5% |
|
Service Providers |
3% |
3% |
6% |
Returns & Compliance for Composition Dealers
- You have to file CMP-08 every quarter (this is for paying your self-assessed tax).
- GSTR-4 needs to be filed once a year (summary of the year’s sales).
- Keep basic records, no need to maintain full detailed books like regular GST payers.
- You cannot give a tax invoice. Instead, you must give a bill of supply.
- GST should not be collected from customers.
Benefits of Composition Scheme
- GST under composition scheme is paid at a much lower rate than what regular dealers pay. So, the tax burden is less.
- Composition dealers don’t have to file returns every month like regular dealers. They just need to file GSTR-4 once every quarter, which is easier to manage.
- Since GST is paid at a reduced rate, more money stays in hand, this helps improve cash flow and liquidity.
- There’s also less paperwork and compliance involved. This is very helpful for small businesses that don’t have time or resources for detailed filings.
Limitations of Being a Composition Dealer
Though the GST Composition Scheme has some benefits, it also comes with a few drawbacks that businesses should be aware of:
- Limited scope for business: Dealers under this scheme can’t do inter-state sales, can’t sell non-taxable items, and also can’t sell through e-commerce sites like Amazon or Flipkart. So their business reach becomes restricted.
- No input tax credit:Whatever tax is paid on purchases, they can’t claim it back. This adds to the cost and can eat into their profit margin.
- Compliance is still required: Even though compliance is simpler than regular GST, composition dealers still need to keep basic records and file quarterly returns. Small businesses might still find this a bit tough.
- Higher rate for restaurants: Restaurants under this scheme have to pay 5% tax, which is actually more than what manufacturers or traders pay. So it may not be very attractive for small food outlets.
How to Opt for the Composition Scheme?
To opt for the Composition Scheme, the taxpayer needs to file GST CMP-02 on the GST Portal. This should be done at the beginning of every financial year, if the dealer wants to continue or newly opt for the scheme. It’s all online and quite easy to do.
Conclusion
The GST Composition Scheme is a simple tax option for small businesses with turnover up to ₹1.5 crore. It helps reduce paperwork and makes tax filing easier. But it also comes with some limits, like you can’t claim input tax credit or do interstate sales. So before opting in, it’s better to think through if it suits your business. And once you’re in, make sure to follow GST rules properly to avoid any penalties or issues later.
This concludes our post. Please leave any questions or comments in the box below; and we will happily respond.
FAQs
1. Who is qualified for the GST composition scheme?
Ans: Businesses with a total yearly revenue of less than Rs. 1.5 crore that supply products and services are eligible for the GST composition scheme.
2. What is the GST Composition Scheme Bill?
Ans: The GST composition plan bill enables small firms to pay a fixed GST rate as a tax on turnover rather than regular GST. As a result, you will not see any GST charges on such a bill.
3. What's the difference between regular and composition GST?
Ans: The regular GST plan requires standard GST rates ranging from 5% to 28%, but the composition scheme requires a fixed lower rate (1% for manufacturers and traders and 5% for restaurants).
