What Is GST Composition Scheme? Eligibility & How To Opt For The Scheme

A streamlined tax structure commonly selected by small businesses with a certain turnover is the composition scheme under the GST statute. The previously mentioned scheme allows taxpayers with yearly aggregate turnover up to INR 1.5 crores (INR 75 lakhs for special category States) to elect to have their GST payments waived. Small taxpayers whose total turnover in a financial year did not exceed Rs. 75 lakhs may use the composition plan to pay their GST. The maximum annual turnover for Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, and Himachal Pradesh is Rs. 50 lakhs. Based on an interview conducted with Sanjay Chhabria, Director, Indirect Tax, Nexdigm, businesses can know all about the GST Composition Scheme.

Q1. Can you please explain the composition scheme of GST? And who can opt for it? Also is composition rate based on turnover or the goods being sold specifically.

Ans: The composition scheme under the GST law is a simplified tax structure generally opted by small businesses with specified turnover. Taxpayers with annual aggregate turnover up to INR 1.5 crores (INR 75 lakhs for special category States) can opt to discharge GST under the said scheme. However, in the case of service providers other than restaurants, this turnover threshold is fixed at INR 50 lakhs with a GST rate of 6%.

The scheme permits such taxpayers to pay GST at a subsidized rate of 1% or 5% or 6% calculated on the turnover of goods or services supplied. These tax rates are applicable to manufacturers / traders / manufacturer cum traders, restaurant service providers and brick manufacturers, respectively. The reduced rate under the scheme, however, does not apply to the transactions covered under reverse charge mechanism and the dealer is required to discharge the tax at normal rates in such instances at applicable tax rates (viz., 5%/ 12% / 18%).

It is only in case of specific goods such as ice cream, pan masala and tobacco & tobacco substitutes that the Government, through the GST Council, has disallowed the composition scheme.

Q2. What are the compliances that need to be followed by those who opt for the GST composition scheme? (gst return, forms, legal, etc)

Ans: The GST registration for a composition dealer is different than that for a regular dealer. Further, the following compliances are to be followed

• Quarterly payment of GST through Form GST CMP-08. The same is payable by 18th of the month succeeding the quarter.
• Annual filing of Form GSTR-4, which is due by 30th April following the end of financial year.

In addition to the periodic GST filings, a composition dealer is required to project himself as "composition taxable person" on every notice or signboard displayed at a prominent location at his principal as well as every additional place(s) of business.

It is worth noting that the scheme also comes with certain conditions like,

1. Restriction on supply of goods not taxable under GST (like alcohol)
2. If taxpayer is a conglomerate with varied segments under the same PAN, then all such businesses will need to register under the scheme

3. Taxpayer opting for the composition scheme is prohibited from

1. Collecting GST from the customers,
2. Availing Input Tax Credit in respect of the procurements / purchases, and
3. Making inter-state supplies, engaging in supply of non-taxable goods and / or services, and in supply of goods and / or services through e-commerce operator who collects tax at source.

Q3. Why can't those who choose the GST composition scheme issue a tax invoice?

Ans: A composition dealer is prohibited from collecting the GST from his customers. He rather needs to discharge GST at subsidized rate on the revenue generated during the quarter. Hence, the GST law mandates issuance of a 'bill of supply' instead of a 'tax invoice'. Such bill of supply should specifically bear the words "composition taxable person, not eligible to collect tax on supplies".

Q4. Who cannot opt for the GST composition scheme?

Ans: As per the GST law, the following categories cannot opt for the scheme

• Taxpayer whose aggregate turnover exceeds the prescribed threshold.
• Taxpayer engaged in making any supply of goods or services which are not leviable to GST, or engaged in making any inter-State outward supplies, or engaged in making any supply of goods or services through an electronic commerce operator who is required to collect tax at source.
• A casual taxable person or a non-resident taxable person.
• Manufacturers and traders of ice cream, pan masala, or tobacco.

Q5. Can it happen that a business is a manufacturer of ice-cream and also a seller of milk, cheese, etc. Can he opt for a composition scheme, or will it be decided based on what is the primary nature of his business? i.e., trading of goods and manufacturing.

Ans: As mentioned above, a registered person engaged in manufacturing of ice cream is specifically restricted from availing the composition benefit. In our view, since the given scheme is applicable at PAN level, such registered person will not be entitled to opt for composition only for his trading business (where the manufacturing business remains ineligible).