The Goods and Services Tax, i.e. GST is going to completely transform the Indian business industry. From improved transparency to the elimination of double taxes there is a slew of welcoming changes associated with the new regimen. However, not everyone is liable to register under then new GST scheme. If your annual turnover is below the threshold, then you don’t have to register for GST, but rather a separate branch under it, which is the composition scheme.
The following are some of the key points you must know about the GST composition scheme:
The GST council has released a threshold limit to decide which taxpayers should be allowed to come under the composite scheme. If your annual turnover is below this limit then you can opt for the composition scheme.
The following explains the threshold limit:
For North East India, Uttrakhand, Himachal Pradesh, and Sikkim: The aggregate turnover of all the business verticals that come under then same PAN should be above Rs. 10 lakh for the preceding financial year but not higher than Rs. 50 lakhs.
For the Rest of India: The aggregate turnover of all the business verticals that come under then same PAN should be above Rs. 20 lakhs for the preceding financial year but not higher than Rs. 50 lakhs.
Input Tax Credit
A businessperson under the GST composition scheme cannot claim Input Tax Credit. This is one of the biggest drawbacks under this scheme. So, the merchants who are registered under regular GST regime will be able to offer lower prices on the same goods as yours by being able to claim a portion of the tax paid by then though ITC.
Now, this is where you will be able to get a benefit over the regular GST merchants. The rate of tax levied under then GST composition scheme will be less than normal GST. However, it will still be at least 1% of the turnover of a financial year. The actual rate is expected to fall within 1% to 3%.
To avail the benefits of the GST composition scheme you will need to register yourself on a voluntary basis, and that too every year. If your annual turnover crosses the threshold i.e. Rs. 50 lakh during any financial year you will automatically become liable to register under then regular GST scheme.
Note: If you are already working under the current VAT composition scheme then also you need to register under the new GST composition scheme on a voluntary basis.
Nature of Supplies
Only those merchants who supply within the same State can avail the benefits of the GST composition scheme. Thus, if your supplies are inter-state based then you don’t qualify for GST composition scheme.
Frequency of Returns
Normal taxpayers under the regular GST scheme have to file monthly returns via forms GSTR-1, GSTR-2, and GSTR-3. However, since the main objective of the GST composition scheme is to provide simplicity and ease in tax calculation, as GST composition merchant you will just need to file returns on a quarterly basis i.e. once every four months in a financial year.
Bill of Supply
The normal taxpayers under the regular GST scheme have to issue tax invoices. However, since GST composition dealers can’t claim tax inputs they have to issue a bill of supply instead.
If you operate multiple businesses, then under the composition scheme you are not allowed to levy composition tax on some businesses and skip the rest. So, for instance, say you run a mobile store, a computer hardware store, and a snack bar, then the composition scheme will be applicable to all three of them. If the three businesses fall under then same business PAN they all shall be covered under the composition scheme whether they are being operated within a single state or interstate.
Moving from Composition Scheme to Normal Scheme, and Vice Versa
Situation 1: When you become a composition dealer from a regular dealer
If you are a composite tax payer then you need to pay tax at a rate not more than 0.5% for other suppliers of turnover, 1% for a manufacturer, and 2.5% for the restaurant sector. You also cannot:
- Claim input tax credit of GST paid to you suppliers.
- Supply goods through an aggregator (any e-com company such as Flipkart, Amazon. ).
- Do business through a supply of services.
- Manufacture some specific types of goods as notified by the GST council.
- Supply goods that can’t be taxed under GST.
- Collect tax on your outward supply of goods.
Situation 2: When you become a regular dealer from a composition dealer
When your annual turnover exceeds the threshold and you become liable to register under regular GST, you also become eligible to claim input tax credit. However, you must claim it within 30 days from the date you become liable for GST registration to avail the benefit.
For a better understanding, consider the example below.
Let’s say that you are a manufacturer of blankets and have crossed the threshold limit for GST registration on 5th November 2017. You have raw wool in stock worth Rs. 2 lakhs and have paid a GST @ 18% i.e. Rs. 36,000 on it. So, you must apply for GST registration before 5th December 2017 (within 30 days) if you want to claim the ITC i.e. Rs. 36,000.
Returns to be Filed by a Composite Tax Payer
Filing returns is much easier and simpler for composite taxpayers in comparison to the regular taxpayers under then GST regime. In the former case, you just need to file an annual return and a quarterly return, or a total of five returns per year. The following table offers the details associated with these returns:
|Return Form||Frequency||Due Date||Details to be included|
|GSTR-4A||Quarterly||NA||This form will be prefilled/auto-populated with the details provided by your supplier via form GSTR-1|
|GSTR-4||Quarterly||18th of the next month||Details of all the outward supplies of goods and services along the prefilled details of the form GTSR-4A. If there are any changes required in the Form GSTR-4A then you can also add those in the Form GSTR-4.|
|GSTR-9A||Yearly||31st December of the next financial year||Combined details of all the quarterly returns along with the tax payment details.|