GST Composition Scheme- Analysis (Updated FY 2020-21)

Since there have been many amendments in GST Composition Scheme from time to time, I am analyzing all affected provision of GST composition scheme at one place. In this regard, I am presenting- “GST Composition Scheme- Analysis (Updated FY 2020-21)”

1. What is GST composition scheme?

Composition scheme is an alternative method to tax small taxpayers while simplifying compliances and reducing their compliance costs. Such schemes have existed in the previous regime of VAT laws, service tax laws and excise laws as well. Even the income tax law has Section 44AD, 44ADA and 44AE to provide for a flat rate of taxation in case of small assessees (Name given to such scheme under Income tax is Presumptive scheme of taxation).

2. What are Turnover limit to opt for Composition Scheme?

After the 32nd GST Council meeting held on 10th January 2019 Taxpayers with Aggregate Turnover up to Rs 1.5 Cr. can opt for composition scheme, who doesn’t want to avail ITC facility.

However, the Turnover limit for the following states is: Aggregate Turnover Rs. 75 lakh or less in the preceding  financial year:

    • Arunachal Pradesh
    • Manipur
    • Meghalaya
    • Mizoram
    • Nagaland
    • Sikkim
    • Tripura and
    • Uttarakhand

[Aggregate Turnover: = Total of  [Taxable outward supplies + Nil rated supplies + Exempted supplies under a notification + Non-taxable supply i.e. (Alcoholic liquor for human consumption + 5 Petro-products mentioned U/s 9) + Exports + Inter-state supplies] but shall exclude the amount of CGST, SGST, IGST,UTSGT or cess included in the turnover.]

    • Thus, it shall be noted that all the supplies made by the person shall be included in the calculation whether those supplies are taxable or exempted or even don’t attract GST at all!
    • This total has to be calculated for all the persons who are doing business under the same PAN. In other words, a person who is doing his business from multiple states has to register in each separately as per the GST laws. For determining his ATO, turnover across all his registrations under the GST (which are under the same PAN) shall be totaled.

3. What are the different rates of tax under the composition scheme?

We can classify GST composition scheme types in two parts:

I.Composition scheme u/s 10(1):

a.  Manufacturers (incl. Provisions of services up to 10% of Turnover in the preceding FY or

Rs. 5 Lakh, whichever is higher)- 1%

(Those other service providers are not eligible for composition scheme u/s 10(1) except for services allowed to be provided up to the threshold limits as above

b. Restaurant/Caterers- 5%

c. Traders (incl. Provisions of services up to 10% of Turnover in the preceding FY or

Rs. 5 Lakh, whichever is higher)- 1%

II.Composition scheme u/s 10(2A):

For those suppliers who are ineligible for composition scheme u/s 10(1) as above i.e. Service providers other than restaurant/ caterers or traders/ manufacturers who are providing services exceeding 10% of the turnover in the state in preceding FY or Rs. 5,00,000 whichever is higher- 6%

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4. What are the Form for Return /Payment and its frequency ?

All taxpayers opting in for composition shall file FORM GST CMP-08 quarterly and pay GST and shall file GSTR-4 annually.

5. What are Different GST Forms under Composition Scheme?

Form Number/ Name Purpose of the form
GST CMP- 01Intimation of tax payment (It is for those taxpayers who are provisionally registered)
GST CMP -02To opt for GST Composition scheme
GST CMP- 03To furnish details of stock and inward supply from an unregistered person.
GST CMP- 04To Opting out of composition scheme.
GST CMP – 05Show-cause notice issued by appropriate tax official n contravention of GST Act rules.
GST CMP- 06Reply against SCN in Form GST CMP-05
GST CMP – 07Order for acceptance or rejection is issued in GST CMP-7
GST REG- 01Registration under the GST Composition Scheme
GST ITC – 01Details of inputs as available with the GST Composition supplier.
GST CMP – 08All taxpayers opting in for composition shall file FORM GST CMP-08 quarterly

6. What is the billing format for GST Composition Scheme?

All those businesses and individuals registered under the Composition Scheme are not allowed to issue tax invoices or GST invoices as they cannot charge GST on outward supplies of goods or services.

For making outward supply, GST composition registered person needs to issue Bill of Supply.

This bill of supply shall contain– “Composition Taxable Person, Not Eligible to Collect Tax on Supplies”.

Following are forming part of Bill of Supply:

  • Supplier name, GST Identification Number (GSTIN) and Address.
  • A serial number of bill of supply same as invoice number.
  • Date of issue of bill of supply.
  • Details of Recipient of goods/services such as name, address and GSTIN.
  • HSN code of goods being supplied
  • Description/quantity of Goods/services (as applicable)
  • Total value of supplies (adjusted for applicable discounts)
  • Signature/digital signature of the supplier

7. Is Composition Registered taxpayers allowed to use ITC for tax payment ? 

Businesses or individuals are not allowed to claim an Input Tax Credit if they are registered under the GST Composition. In that case, the suppliers need to make payments of GST out of pocket.

8. Benefits of GST Composition Scheme Registration?

  • Reduces compliance requirements, hence considered as a right option for small businesses with limited resources.
  • Higher liquidity for small businesses as tax rates are lower.

9. What are the Limitations of the GST Composition Scheme Registration?

  • Composition dealers have to restrict themselves in their state of operation only because they cannot make interstate supplies.
  • Unavailability of input tax credit mechanism to offset GST payments.

If you have any queries, please ask in the comment box below.

Also Read:

How to Opt for GST Composition Scheme: FAQ [2020]

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