Composition Scheme for Supplier of Goods

The composition scheme under the CGST Act 2017 is an alternative taxation scheme, optional in nature, which is introduced for the benefit of small taxpayers. This saves them from the complexity and hustle of the taxation regimen and compliance like filling returns every month, maintaining full-fledged records, etc. Under this scheme, a registered person will need to pay GST on their turnover based on a fixed and prescribed percentage as per the CGST Act. The tax rate here is comparatively lower than those prescribed for normal taxpayers. 

ELIGIBILITY CRITERIA OF THE COMPOSITION SCHEME 

1. A person dealing in only goods can opt for such a scheme. Manufacturers can also go forward with the composition scheme given that manufacturers of pan masala, ice cream, and tobacco are not eligible. Restaurants that do not serve alcohol can also opt for a composition scheme. 

2. The aggregate turnover of the above person shall not cross Rs 1.5 Cr in normal cases and for northeastern states and Himachal Pradesh, this limit will be Rs 75 Lacs. 

Here, aggregate turnovers include the value of all taxable and non-taxable supplies, zero rates suppliers, and exports of a persona having the same PAN. GST is excluded. 

3. If the turnover exceeds the above-prescribed limits in an FY, then from such day the person will cease to be in the composition scheme and will need to pay GST as per the normal norms of the CGST Act. 

4. A person is not allowed to make inter-state supplies i.e. they are allowed to make only intra-state sales in the same state or UT whichever the case may be. 

5. If a person wants to go for a composition scheme, then all of the entities under his PAN will be bound to opt for a composition scheme. Registration of the same PAN under different schemes is disallowed. 

6. If one entity becomes ineligible then other entities will also become ineligible for taking or to continue with the composition levy scheme. 

7. A casual taxable person, a Non-Resident Taxable Person, a Supplier selling through an E-Commerce Operator, and a person not taxable in this act are ineligible for the composition scheme. 

TAX RATES UNDER THE COMPOSITION SCHEME 

The Composition Scheme rates for composition dealers are as under:

Manufacturers: 0.5% + 0.5% = 1% of the turnover in state or UT, i.e. 1% of the entire turnover irrespective it is taxable or exempt. 

Traders: 0.5% + 0.5% = 1% of the turnover of taxable supplies of the goods and services in the state or UT, i.e. 1% of the turnover of only taxable goods or services, not exempt. 

Restaurants and other catering services = 2.5% + 2.5% = 5% of the turnover in the state or UT [i.e. 5% of the entire turnover, whether taxable or exempt]

CONDITIONS TO OPT FOR COMPOSITION SCHEME UNDER GST

1. The RCM (Reverse Charge Mechanism) requires taxpayers to pay tax at the normal rates on all transactions i.e. the composition scheme registered person won’t get concessional rate benefit when it comes to RCM. 

2. A registered person under composition can not opt for an Input Tax Credit (ITC). 

3. No invoice is issued under the composition scheme, rather a bill of supply is to be issued and the taxpayer must also mention on the same “Composition taxable person”

4. All signboards at the business place must mention the words “Composition taxable person”

BENEFITS OF REGISTERING UNDER THE COMPOSITION SCHEME

1. Lower tax rates ensure that the liability is lower and the liquidity is on the higher side. This makes more working capital available. 

2. Less tax liability as compared to normal scheme taxpayers

3. Significantly fewer compliances and complexity of the rules and provisions of tax fillings, records, invoices, etc.

DOWNSIDES OF OPTING COMPOSITION SCHEME 

1. Such a person can not make sales outside the state in which he is registered. 

2. Such a person can not pass on the ITC and hence no dealer will like to purchase from such a person as he will not get the ITC and this in turn will increase the cost. 

3. Such a person can not make the sales through an E-Commerce operator. 

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