All your Queries under Composition Scheme Answered Here
In this article, we have addressed some of the basic queries around Composition Scheme under Goods and Services Tax Law.
Let’s look at some of the common questions around Composition Scheme that businesses should know.
1. Who can opt for Composition Scheme?
Businesses with annual turnover upto Rs 1.5 crore* can opt for composition scheme.
Turnover of all businesses with same PAN has to be added up to calculate turnover for the purpose of composition scheme.
Businesses dealing only in goods can only opt for composition scheme. Services providers have been kept outside the scope of this scheme. However, restaurant sector taxpayers can also opt for the scheme.
2. What is the tax rate applicable to a Composition Dealer?
Please use the chart below to understand the tax rate applicable:
The tax rate for manufacturers is proposed to be decreased from 2% to 1% as delcared in the 23rd GST Council Meet held on 11th November 2017.
3. How should the Tax amount be calculated?
A composition dealer is required to pay tax at a specific rate on total sales. The dealer has to also pay tax on reverse charge on purchasing specified supplies and in case of purchase form unregistered dealer.
This means that –
Total GST Payable =
Tax on Sales
+ Tax on Reverse Charge
+ Tax on purchases from Unregistered Dealers
4. Should a Composition Dealer maintain detailed records?
No, a dealer registered under composition scheme is not required to maintain detailed records as required by a normal taxpayer.
5. Can Composition Dealers avail Input Tax Credit?
No, a Composition Dealer is not allowed to avail input tax credit of GST on purchases.
6. Can a Composition Dealer issue Tax Invoices?
No. A Composition Dealer cannot isssue a tax invoice. This is because the tax has to be aid by the dealer out of pocket. A Composition Dealer is not allowed to recover the GST from the customers.
7. What are the returns to be filed by a Composition Dealer?
The taxable person is required to furnish only one return i.e. GSTR-4 on a quarterly basis and an annual return in FORM GSTR-9A.
8. Is liability to pay taxes under Reverse Charge Mechanism covered under the Composition Scheme?
A Composition Dealer has to pay tax under Reverse Charge Mechanism wherever applicable. There is no exemption to a composition dealer here.
9. Can a Composition Dealer collect tax from coustomers ?
No, a Composition Dealer is not allowed to collect composition tax from the buyer.
10. Can a dealer involved in interstate supplies opt for Composition Scheme?
No, Composition Scheme is available only for intra-state supplies. If a dealer is involved in inter-State supplies, then they cannot opt for the scheme.
11. What are the transition provisions if a business transits from Composition Scheme under old regime to Regular Taxation under GST?
Taxpayers registered under composition scheme under VAT will be allowed to take credit of input in stock, or in semi-finished goods or in finished goods held on the day before the day of opting out of composition scheme.
12. What are the conditions for availing input credit on stock lying at the time of transition?
Following are 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:
- Inputs or goods will be used for making taxable supplies.
- The CENVAT Credit was eligible to be claimed in the previous regime, however, couldn’t claim it being under composition scheme.
- ITC is eligible for availing under GST regime.
- Taxpayer has bills of input tax paid on such goods.
- Invoices should not be older than 1 year from 1st July 2017 (i.e. not dated before 1st July 2016)
13. What is the treatment for input credit availed when transitioning from normal scheme to Composition Scheme?
When switching from normal scheme to composition scheme, the taxpayer shall be liable to pay an amount equal to the credit of input tax in respect of inputs held in stock on the day immediately preceding the date of such switchover. The balance of input tax credit after payment of such amount, if any lying in the credit ledger shall lapse.
14. Can I opt for Composition Scheme in one year and opt out in next year?
Yes, this is possible. You can opt to switch between the Composition Scheme and the normal scheme based on your turnover. However, you will have to keep in mind that this will affect the way you issue invoices and file your returns.
The declaration of change can be submitted on the GST Portal.
15. I have many branches. Will composition scheme apply to each of them seperately?
If Composition Scheme is opted for all businesses that are associated with this PAN
16. Is it true that Composition Dealers can sell a product at a lower price than regular dealers?
Yes. Composition dealers cannot charge GST on their sales. So the end consumer pays less money than usual.
17. Can I opt-in for composition scheme anytime during the year?
No. Before the beginning of every financial year, a registered taxpayer is required to provide a declaration on the GST Portal. This cannot be done anytime during the year.
*Latest update as per 23rd GST Council Meeting held on 10th Nov 2017
Threshold for composition scheme to be increased to 1.5 crore
Due date of GSTR-4 for the quarter July-September, 2017 is extended to 24.12.2017
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