Composition Scheme Under GST Explained

Composition Scheme Under GST Explained

Who can select Composition Scheme?

Businesses with yearly turnover equal to Rs 1.5 Crore may select composition scheme. Turnover of all businesses with identical PAN requires adding up in order to calculate turnover for the objective of composition scheme. The following entities are eligible to choose this scheme:

1. Manufacturers of goods,
2. Dealers, and
3. Restaurants (not serving alcohol).

GST rates for a composition dealer

As per the 23rd GST Council Meet, manufacturers and traders under the composition scheme, the rate is set at 1%. However certain conditions are applicable to this condition.

Is it compulsory to pay taxes under Reverse Charge Mechanism covered under the Composition Scheme?

A Composition Dealer is obligated to pay tax under Reverse Charge Mechanism wherever pertinent. The rate relevant to the supplies is the rate at which GST has to be compensated. The rate under composition scheme should not be utilized for reverse charge purposes. Furthermore, no ITC is accessible for tax paid under reverse charge for a composition dealer.

On purchasing goods from an unregistered dealer, is it necessary to pay tax?

On purchase from an unregistered dealer, the tax has to pay at normal rates only for the months of July and August 2017. There is no need to pay tax on these purchases from September onwards. ITC is not available on tax paid under reverse charge.

Is it necessary to pay IGST interstate purchases attracting reverse charge?

IGST should not be paid by a composition dealer. It is essential for the dealer to pay tax under reverse charge, import of service or purchase from an unregistered dealer has to pay CGST and SGST only.

How should the Tax amount be calculated?

It is necessary for a composition dealer to pay tax at a specific rate on total deal. In addition, the dealer is required to pay tax under reverse charge on specified purchases, purchase form unregistered dealer as well as import of services. Total GST Payable =Tax on supplies (net of advance and goods returned )+ Tax on B2B transactions where Reverse Charge is applicable+ Tax on B2B purchases from Unregistered suppliers (July and August 2017) + Tax on Import of Services As per the Reverse Charge, the rate of tax levied on transactions , the purchase from an unregistered dealer and import of services will be at normal rates, which refers to the rates applicable to the supplies. Under Composition Scheme, the rates are applicable only to sales of a composition dealer.

Should a Composition Dealer maintain detailed records?

No, it is not necessary for a dealer enrolled in composition scheme to retain comprehensive records as required by a normal taxpayer.

Can Composition Dealers avail Input Tax Credit?

No, a Composition Dealer is not allowed to avail input tax credit of GST on purchases.

Can a Composition Dealer issue Tax Invoices?

A composition dealer is not eligible to issue tax invoice. The reason behind this is that a composition dealer cannot indict tax from their customers. The tax needs to be paid by them. Consequently, the dealer has to release a Bill of Supply. The dealer is obligated to mention “composition taxable person, not eligible to collect tax on supplies” at the top most portion of the Bill of Supply.

What are the returns to be filed by a Composition Dealer?

It is obligatory to file a quarterly return GSTR-4 by the dealer on the 18th of the month subsequent to the end of the quarter. In addition, an annual return GSTR-9A has to be filed by the 31st December of subsequent financial year. Furthermore, a dealer registered under composition scheme is not liable to maintain comprehensive records.

Can a Composition Dealer collect tax from customers?

No, a Composition Dealer is not eligible to collect composition tax from the purchaser.

Can a dealer involve in interstate supplies opt for Composition Scheme?

Composition Scheme is made accessible only to dealers engaged in intra-state supplies. If a dealer is involved in inter-State supplies, they are required to leave this scheme.

What are the modifications in provisions if a business transits from Composition Scheme under old regime to Regular Taxation under GST?

The entities who are already registered under pre-GST regime e.g.- VAT Act, Service Tax, Central Excise laws and so on can be approved registration on a conditional basis and may choose Composition Levy. In order to do this, the individual may file intimation in a duly signed FORM GST CMP-01, prior or within 30 days of the appointed date.

What are the provisions for availing input credit on stock present at the time of transition?

The conditions which must be addressed by the taxpayer to avail credit on input at the time of transition from composition scheme to the normal scheme are as follows:

1. Inputs or goods will be used for making taxable supplies.
2. The CENVAT Credit was claimed in the previous regime, however, it is not possible to claim it under composition scheme.
3. ITC is eligible for availing under GST regime.
4. The taxpayer has bills of input tax paid on such goods.
5. Invoices should not be older than 1 year from 1st July 2017.

What is the management for input credit availed when transitioning from normal scheme to Composition Scheme?

During the transition from a normal scheme to a composition scheme, the taxpayer shall be held accountable to pay an amount equivalent to the credit of input tax in respect of inputs held in stock on the day instantaneously prior the date of such a replacement. The balance of input tax credit after the payment of such amount shall lapse.

Can I opt for Composition Scheme in one year and opt out in next year?

Yes, it is possible to switch to Composition Scheme and the normal scheme based on the individual’s turnover. However, this will affect the way invoices are issued and returns are filed. The declaration of change can be submitted to the GST Portal.

Will composition scheme apply separately for a business with many branches ?

Composition Scheme allows an entity to select the scheme provided for all the places of business having the same registered PAN .

Is it true that Composition Dealers can sell a product at a lower price than regular dealers?

Yes, Composition dealers are not eligible to charge GST on their sales. As a result, the end consumer ends up paying less money than usual.

Can an individual select composition scheme anytime during the year?

No, Prior to the beginning of every financial year, a registered taxpayer is required to present a statement on the GST Portal. This process cannot be done anytime during the year.

What will happen if I opt out of composition scheme mid-year?

In case, a dealer chooses to leave the composition scheme, all the normal rules will be applicable. This will start from the day of opting out.