GST Act requires multiple compliances in relation to tax payment, tax return filing, invoicing etc. However, the dealers that work at a smaller level may have a limited turnover and may not have the required resources to comply with the complicated provisions. Thus, the composition scheme has been introduced to minimize the burden of tax compliance for small taxpayers. The dealer who opts for Composition Scheme u/s 10 of CGST Act is known as a Composite dealer.
The scheme is available to those whose aggregate turnover in a financial year does not exceed Rs.75,00,000. However, the scheme is available only to the supplier of goods and not a supplier of services (except restaurant service). It is also not available to persons who supply goods outside the state. This scheme is optional.
What are the Benefits of the Composition Scheme?
- Minor compliance (return, maintenance of books for records, issuing invoices)
Limited tax liability
- High liquidity as taxes are at a lower rate
- The dealer has to pay a fixed percentage of turnover as tax and need not worry about complicated tax calculations.
- They have to file quarterly returns and not monthly returns like a normal taxpayer.
What are the drawbacks of the Compilation Scheme?
- A limited territory of the business. The dealer is not allowed to perform interstate transactions
- No entry Tax credit available to the composition dealers
- The taxpayer will not have the right to deliver released goods or goods through an e-commerce portal.
- The dealer cannot go for the inter-state supply of goods.
- The dealer is not entitled to Input Tax Credit.
- The dealer cannot charge GST in their invoice and thus cannot recover the tax from the buyer.
1) Who can opt for Composition Scheme?
- Businesses with annual turnover up to Rs 1.0 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.
- Only Manufacturers of goods, Dealers, and Restaurants (not serving alcohol) can opt for composition scheme.
- The threshold limit for opting into a composition scheme is recommended for an increase to Rs. 1.5 crores but yet to be notified
2) What is the tax rate applicable to the distributor of the compositions?
Please use the chart below to understand the tax rate on turnover applicable:
3) Is it obliged to pay taxes under the Reverse Collection Mechanism covered by the Compilation Scheme?
- A component dealer must pay a tax under the Reverse Collection Mechanism whenever applicable.
- The rate applicable to the supply is the rate at which the GTS is to be paid. This means that the rate according to the composition scheme should not be used for the purpose of reverse collection.
- Also, no ITC is available for a tax paid under a reverse charge for a dealer of a composition.
4) I buy goods from an unregistered dealer. Do I need to pay tax?
- A normal rate tax should be paid for purchase by an unregistered dealer only for the months of July and August 2017. Since September, there is no need to pay taxes on these procurements.
- ITC is not available for a tax paid under a reverse charge.
5) Do I need to pay IGST interstate purchases by attracting a reverse charge?
- IGST should not be paid by the dealer to the composition. The dealer is obliged to pay tax under a reverse charge, the import of a service or the purchase from an unregistered dealer must pay only CGST and SGST.
6) How should the Tax amount be calculated?
A composition dealer is required to pay tax at a specific rate on total sales. Also, the dealer has to pay tax under reverse charge on specified purchases, purchase form unregistered dealer and import of services.
This means that 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
+ Tax on Import of Services
The rate of Tax on transactions under Reverse Charge, purchase from an unregistered dealer and import of services will be at normal rates, i.e. the rates applicable to the supplies. Rates under Composition Scheme are applicable only toÂ sales of a composition dealer.
7) What are the conditions for using the input credits of shares that lie at the time of transition?
The following are the conditions that must be decided by the taxpayer to use the credits for entry at the time of the transition from the scheme for drawing in a normal scheme:
- Input or merchandise will be used to be taxed.
- The CENVAT loan could be required in the previous model, but could not claim to be under the compilation scheme.
- ITC has the right to use it under the GTS regime.
- The taxpayer has invoices of input taxes paid for those goods.
- Invoices should not be older than 1 year from 1 July 2017 (ie not dated before 1 July 2016)
8) What are the returns for the Composer Distributor?
- A taxable person is obliged to submit only one report, that is, GSTR-4 on a quarterly basis and an annual return to FORM GSTR-9A.
- Also, automatically prepared details are not available for the composer dealer for the fourth and ninth months of September – October and October – December. This means that all sales details should be entered manually by the Composition Dealer.
9) What will happen if you cancel the composition scheme in the middle of the year?
When a dealer selects a compiled scheme, all normal rules apply from the date of removal.
For example, the dealer is selected from the composition on October 15, 2017. This means that the dealer will have to submit two GSTR-4 for July-September and October (15 days). The dealer will also have to submit GSTR-1, GSTR-2 and GSTR-3 for the period from October 2017 (sale from October 15 to the end of the month)