Simplified Taxation: Exploring the GST Composition Scheme

Composition Scheme is a simple and easy scheme under GST for taxpayers. Small taxpayers can get rid of tedious GST formalities and pay GST at a fixed rate of turnover. This scheme can be opted by any taxpayer whose turnover is less than Rs.1.5 crore*.

You can know whether a taxpayer opted for a composition scheme or not using the GST search tool. Enter any GSTIN and check the ‘Taxpayer Type’ column in the results to know whether the taxpayer is a regular taxpayer or opted for the composite scheme.

Who can opt for Composition Scheme?

A taxpayer whose turnover is below Rs.1.5 crore* can opt for Composition Scheme. In case of North-Eastern states and Himachal Pradesh, the limit is now Rs. 75* lakhs. As per the CGS (Amendment) ACT, 2018 a composition dealer can also supply services to an extent of ten percent of turnover, or Rs.5 lakhs, whichever is higher. This amendment will be applicable from the 1^st of Feb. 2019. Further, GST Council in its 32^nd meeting proposed an increase to this limit for service provides to 10^th Jan 2019*. Turnover of all business registered with the same PAN should be taken into consideration to calculate turnover.

Who cannot opt for Composition Scheme?

The following people cannot opt for the scheme-

Manufacturer of ice cream, pan masala or tobacco
A person making inter-state supplies
A casual taxable person or a nonresident taxable person

What are the conditions for availing Composition Scheme?

The following conditions must be satisfied in order to opt for composition scheme:

No Input Tax Credit can be claimed by a dealer opting for composition scheme.
The dealer cannot supply goods not taxable under GST such as alcohol.
The taxpayer has to pay tax at normal rates for transactions under the Reverse Charge Mechanism.
If a taxable person has different segments of businesses (such as textile, electronic accessories, groceries, etc.) under the same PAN, they must register all such businesses under the scheme collectively or opt out of the scheme.
The taxpayer has to mention the words ‘composition taxable person’ on every bill of supply issued by him.
As per the CGST (Amendment) Act, 2018, a manufacturer or trader can now also supply services to an extent of ten percent of turnover, or Rs. 5 Lakhs, whichever is higher. This amendment will be applicable from the 1^st Feb, 2019.

How can a taxpayer opt for composition scheme?

To opt for composition scheme a taxpayer has to file GST CMP-02 with the government. This can be done online by logging into the GST Portal. This intimation should be given at the beginning of every Financial Year by a dealer wanting to opt for Composition Scheme. Here is a step by step Guide to File CMO-02 on GST Portal.

Guide to File CMP-02 on GST Portal

When a dealer wants to opt for Composition Scheme under GST, they have to intimate the government about it. This can be done by filling Form GST CMP-01 or From CMP-02.

CMO-01 is a Form to be filed by a migrated taxpayer who wants to opt for Composition Scheme. The due date for this was 1^st August 2017 (1 month from July 2017). A taxpayer who wants to opt for Composition Scheme for a financial year has to inform their choice. This is to be done by filing GST CMP-02. If CMP-02 is filed in the middle of the financial year, the rules of the scheme are applicable from the month immediately succeeding the month in which CMP-02 is filed.

For example – A taxpayer files CMP-02 in the month of December 2017. This means that the rules of the Composition Scheme will be applicable from January 2018. Both CMP -01 and CMP-02 are required to be filed online on the GST Portal / GSTN and the process to file is the same.

Here is a Guide to File GST CMP-02 on GST Portal

Step 1 – Login to GST Portal.

Step 2 – Go to ‘Services’ > ‘Registration’ > ‘Application to Opt for composition Levy’.

Step 3 – On this window read the ‘Composition Declaration’ and ‘Verification’ carefully and tick on the checkbox. Choose the ‘Name of Authorised signatory’ from the drop-down. Also, type the ‘Place’ and click on ‘SAVE’.

Step 4 – If you are a Company or an LLP you can only submit the application with DSC. Any other registrant can use any of the three methods to submit the return.

Step 5 – A pop up will open containing the warning. Click on ‘PROCEED’ here.

Once the application is submitted a success message is displayed. Also, an acknowledgement is sent to your registered email id and mobile.

After filing this form a Composition Dealer has the file GST CMP -03 within 90 days.

HOW TO FILE CMP-03 ON GST PORTAL?

After opting into Composition Scheme, a taxpayer has to intimate the government about the about the stock held by them on the day of opting into the scheme. The stock details have to be provided in Form GST CMP-03. Form CMP-03 has to be filed within 90 days from the day of filing CMP-02.

For example: A Composition Dealer files CMP-02 on 25^th November 2017. The dealer is required to file details of stock in CMP-03 by 23^rd February 2017.

Here is a step-by-step guide to file CMP-03 on GST Portal

Step 1: Log in to GST Portal

Step 2: Go ‘Services’ > ‘Registration’ > ‘Stock intimation for opting Composition Levy’.

Step 3: Click on ‘DOWNLOAD TEMPLATE’ BUTTON.

Step 4: Download the Excel Template and unzip the file.

Step 5: Open the Excel file. Click on ‘Enable Content’ on top of the Excel to enable macros.

Step 6: Enter you GSTIN.

Step 7: Click on ‘Insert Rows’. A popup will appear. Enter the number of rows that you want in the excel.

The stock details have to be bifurcated into two.

The stock details have to be bifurcated into two:
Purchases from registered dealer
Purchases from unregistered dealer

Step 8: Click on ‘Validate’ button once all the details have been entered.

Step 9: Click on ‘Generate File to Upload’ button below the ‘Validate’ button to create the CMP-03 file. This file has to be uploaded to the GST Portal/ GSTN.

On successful download a message is displayed with the path where the file is saved.

Step 10: Login to GST Portal and go to section ’Stock intimation for opting Composition Levy’. Click on ‘Choose File’ Select the CMP-03 file and click on ‘UPLOAD AND VALIDATE’.

Step 11: On uploading the file, Tax Payable on the stock is calculated and displayed under ‘Details of tax paid’. Click on ‘Update Ledger Balance’.

The balance in the Electronic Liability Ledger will increase. This liability has to be paid with available balance in Electronic Cash Ledger. Once this is done a ‘Deal Entry No.’ is generated and a success message is displayed.

Step 12: Select the ’Verification’ checkbox, ‘Name of Authorized Signatory’ and fill the ‘Place’ field. Submit the CMP-03 with DSC, E-SIGN or EVC.

On successful submission, a success message is displayed along with the Application Reference Number (ARN).

How Should a Composition Dealer raise bill?

A composition dealer cannot issue a tax invoice. This is because a composition dealer cannot charge tax from their customers. They need to pay tax out of their own pocket. Hence the dealer has to issue a Bill of Supply. The dealer should also mention “composition taxable person, not eligible to collect tax on supplies” at the top of Bill of Supply.

What are the GST rates for a composition dealer?

Following chart explains the rate of tax on turnover applicable for composition dealers:

Composition Scheme – Applicable GST Rates

Type of Business CGST SGST Total

Manufacturer and Traders (Goods) 0.5% 0.5% 1.0%

Restaurants not serving alcohol 2.5% 2.5% 5.0%

Other service Provides* 3.0% 3.0% 6.0%

How should GST payment be made by a composition dealer?

GST Payment to be made out of pocket for the supplies made. The GST payment to be made by a composition dealer comprises of the following:

GST on supplies made.
Tax on reverse charge
Tax on purchase froman unregistered dealer*

*Only on the specified categories of goods and services as well as the notified class of registered persons with effect from 1^st Feb 2019 but is yet to be notified. Hence, not applicable until then.

What are the returns to be filed by a composition dealer?

A dealer is required to pay tax in a quarterly statement CMP-08 by 18^th of the month after the end of the quarter. Also, a return in form GSTR-4 has to be filed annually by 30^th April of next financial year from FY 2019-20 onwards. GSTR-9A is an annual return to be filed by 31^st December of the next financial year. It was waived off for FY 2019-20. Also, note that a dealer registered under, composition scheme is not required to maintain detailed records.

What are the advantages of Composition Scheme?

The following are the advantages of registering under composition scheme:

Lesser compliance (returns, maintaining books of record, issuance of invoices)
Limited tax liability
High liquidity as taxes are at lower rate

What are the disadvantages of registering under GST composition scheme?

A limited territory of business. The dealer is barred from carrying out inter-state transactions
No Input Tax Credit available to composition dealers.
The taxpayer will not be eligible to supply non-taxable goods under GST such as alcohol and goods through an e- commerce portal.
Here is a video to understand about composition scheme under GST.

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