Composition Scheme Under GST
An overview of the Composition Scheme under GST
In this post, We will discuss the GST composition scheme and its features, who can apply it, and other essential details. Let’s take a closer look at each section:
- What is the GST composition scheme?
- Features of GST Composition Scheme
- Who Can Opt for the GST Composition Scheme?
- How to Apply for the Composition Scheme of GST?
- GST Composition Scheme Rules
- GST Composition Scheme Limit
- Rate of Tax Under GST Composition Scheme
- Benefits of the GST Composition Scheme
- Limitations under GST Composition Scheme
- FAQs – GST Composition Scheme
What is the gst composition scheme ?
The GST composition plan reduces GST processes for taxpayers whose yearly income is at most 1.5 crores. GST composition schemes benefit small businesses the most because they need only pay a fixed rate of GST.
As a result, the GST search tool makes it easy to find which entities have opted into the scheme. All you need is the GSTIN, which you can check online. Continue reading to find out more about the GST composition plan.
Features of GST Composition Scheme
Registered taxpayers should be aware of many features of the composition scheme. These features are as follows:
- They reduced the tax burden because the composition scheme’s tax rates were lower than the GST rate. Generally, the tax applicable under the composition system is 1% of yearly turnover.
- The composition system has different tax rates depending on the kind of business. It does, however, vary between 1% and 5%.
- Registered taxpayers must file just one quarterly return, only a few filings for the same quarter.
- Taxpayers enrolled under the composite must create a bill of supply rather than a tax invoice.
- If a taxpayer owns many firms under one PAN, they must pick the composite scheme for all or opt out entirely.
- After attaining the threshold limit, only certain taxpayers are qualified for the composite scheme. These include manufacturers, dealers, and owners of restaurants that do not provide alcohol.
- Under the reverse charge mechanism, the dealer must pay GST at the standard rate.
Who Can Opt for the GST Composition Scheme?
A business owner can choose the GST composition scheme if the annual turnover falls within certain limits. If you are:<
- Small manufacturing unit
- Shopkeepers
- Foodservice division
- Truck driver
- Team of the service sector
- Operator of machinery
- Repair shop
- Artisan fruit and vegetable merchants and more
How to Apply for the Composition Scheme of GST?
It is simple and digital to apply for the GST composite scheme. All you have to do is file the necessary paperwork with the tax authorities. The form, however, changes depending on whether you are an existing taxpayer or a new taxpayer.
As an existing taxpayer, you can pay the composition levy under GST by completing Form GST-CMP-02. Remember to submit this form to the GST site before the financial year begins.
If you are a first-time taxpayer, you must complete Form GST REG-01 on the GST portal. This is a new registration form; you must specify your choice for the GST composition scheme.
GST Composition Scheme Rules
The GST authorities allow manufacturers, service firms, and businesses to register under the GST composition scheme. However, the following parties are not eligible:
- Non-resident or occasional taxpayers
- Companies that buy from unregistered suppliers or manufacturers
- Supplies that offer services and commodities
- Stores that engage in the collection of items exempt from the GST Act
- Tobacco, pan masala, and other similar product manufacturers
- Manufacturers of edible ice, such as ice cream
- Businesses sell through e-commerce platforms and collect tax at the point of sale.
GST Composition Scheme Limit
Each sector has a different GST composition scheme limit.
- A financial year’s turnover limit is $50 lakh for service providers.
- For manufacturers, traders, and restaurants not serving alcohol, the limit is ₹1.5 Crores for any financial year if the taxpayer is newly registered.
- Accordingly, the limit for existing registered entities is ₹1.5 Crores for the previous financial year.
It is important to remember that if your turnover exceeds the limitations mentioned above, you will be required to switch to the standard GST system and will no longer be able to profit from the composite program.
Rate of Tax Under GST Composition Scheme
The tax rate under the GST composition system is based on the category/type of registered company. For example, the rate differs for various organizations under the GST for services composition scheme. The current rates are as follows:
Category/type of registered taxpayer | CGST | SGST | Total GST |
Goods manufacturers and traders | 1.0% | 1.0% | 2% |
Restaurants that do not serve alcohol | 2.5% | 2.5% | 5% |
Traders and other eligible entities | 0.5% | 0.5% | 1.0% |
Benefits of GST Composition Scheme
- Reduced compliance costs, making it suited for small businesses with little capital.
- Limited liability in terms of composition levy tax due
- Lower tax rates result in increased liquidity for small firms.
Limitations under GST Composition Scheme
- You can’t do interstate sales transactions (outward supplies) as a composition dealer.
- Input tax credit mechanism is not available to offset GST payments.
- Composition-registered firms are not permitted to sell items using an e-commerce platform.
FAQs – GST Composition Scheme
1, Is taxpayers registered under the GST Composition Scheme to collect tax from customers legally?
Ans: No, eligible and registered taxpayers are not permitted to collect tax from customers under the GST Composition Scheme.
2. Can a GST Composition Scheme taxpayer send a tax invoice?
Ans: No, a registered taxpayer under the GST Composition Scheme cannot issue a tax invoice. Such a person must give a bill of supply, including the words ‘composition taxable person’ on the document.
3. What is the Composition Scheme's maximum GST rate?
Ans: Under the composition scheme, the maximum rate of GST charged on qualifying service providers is 6% (3% CGST + 3% SGST).
And with that, we end our discussion on the Composition Scheme under GST. If you have any questions, drop them in the comment section below.
