Registration is mandatory for manufacturers, traders and service providers. The normal registered tax payers have to file 3 monthly returns and issue GST compliant invoices to claim Input Tax credit. The Council felt that the small and medium enterprises would not be technologically equipped. So, the government introduced Composition scheme under GST. It is an extension to the previous scheme under the VAT law.
Any business which has a turnover less than ₹1.5 crore can opt for this scheme. But, if the turnover crosses this limit, the business becomes ineligible for the composition scheme. They would have to get registration under the regular scheme.
Eligibility for Composition Scheme:
- Assessees dealing in supply of goods can opt for this scheme.
- Service providers, except Restaurant owners, cannot register under the composition scheme.
- Businesses having only intra state supply of goods are eligible.
- Dealers who collect Tax at source u/s 56.
- No need to maintain detailed records like a normal taxpayer.
- Compounding dealers have to file only a quarterly return under GSTR-4 and an annual return in Form GSTR-9A. Normal taxpayers have to file three monthly returns.
- Taxpayers under the composite scheme will pay tax at concessional rates :
- 1% for manufacturers and traders,
- 5% for restaurants.
- Composition scheme dealers cannot claim Input Tax Credit of GST paid to their supplier.
- Since the dealer is not allowed to charge tax from his buyer, he has to pay out of his own pocket. This increases the burden on assessee to pay the tax.
- Any taxes payable under Reverse Charge Mechanism are not covered under the scheme. So, a compounding dealer has to pay taxes under RCM as a normal tax payer.
Invoicing under Composition Scheme:
A dealer registered under the Composition Scheme is not allowed to claim Input Tax Credit. Hence, he cannot issue a tax invoice. A buyer purchasing from composition dealer will not be able to claim tax credit either.
Transition from Normal scheme to Composition Scheme:
The taxpayer will have to pay an amount equal to the input tax credit in respect of inputs held in stock. The compounding dealer will pay this on the day immediately before the date of such switch over.
If the composite dealer is misusing the benefits of the scheme, he will have to pay all the taxes he would have paid under the normal scheme. He will also be liable to pay a penalty equial to the amount of tax payable.
While opting for composition scheme, remember that the scheme is applicable on all business verticals with the same PAN.
For example, Mr. K has three business verticals registered separately. So, the composition scheme will be available to all three verticals.
One should read the terms and conditions before opting for the composition scheme.