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GST Composition Scheme by HA TAX

GST composition scheme: Reduced GST for Composite Dealers

Jun 10, 2022

GST composition scheme

To provide ease to small and medium enterprises (SMEs) and other businesses, the government has introduced GST Composition Scheme. All the tedious formalities which are deemed to be necessary for carrying out GST filing can now be replaced with lesser compliances by opting GST Composition Scheme. 

The underlying condition is that the turnover of the business should be less than Rs. 1.5 crores (for North Eastern State & Himachal Pradesh the limit is Rs. 75 Lakhs)

The scheme is for-

  • Individuals making inter-state supplies
  • Casual Taxable person
  • Non-Resident taxable person
  • Individual or small businesses making ice cream, pan masala, or tobacco
  • And individuals or businesses which supply goods through e-commerce operators

GST CMP-02 form should be filed to opt for the composition scheme. The filing can be carried out via an online portal but before opting for it intimation should be given to the GST council. 

Individuals or businesses opting for a GST composition scheme are not eligible to collect the input tax credit. GST Composite dealers have to issue a Bill of Supply to the dealers on which the details stating GST Composition Scheme dealer should be mentioned.

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Applicability of GST Composition Scheme

This scheme is especially for individuals or businesses that have a turnover of less than Rs. 1.5 crore. This scheme helps small businesses such as manufacturers, dealers, and restaurants to easily file the GST compliances with lesser compliances.

Advantages & Disadvantages of GST Composition Scheme

Advantages:

  • More ease in filing GST
  • Reduced Tax liability
  • Liquidity is increased

Disadvantages:

  • Input Tax Credit cannot be collected
  • Non-taxable supplies cannot be supplied 
  • Inter-state transactions cannot be carried out

 

GST Composition Scheme for Service Providers

In the 32nd GST council meeting, the GST scheme is made available to the service provider too. For the service provider, the threshold turnover is up to Rs. 50 Lakhs.

The process of getting or enrolling for a composition scheme remains the same just like individuals or businesses who are giving goods. However, in the form, mark/ select “Any other supplier eligible for composition levy”

GST Composition Scheme for Restaurants

The GST composition scheme for Restaurants has been a lot in the talk as there are many changes that have been implemented. 

Some of the rules which govern restaurants to opt for are:

  • Turnover should not exceed Rs. 1.5 crore.
  • They Cannot make interest over the outward supply
  • Supply cannot happen through e-commerce
  • Cannot avail of any input tax credit
  • Can’t collect taxes from the customers
  • Not engage in any other service other than restaurant

Benefits of opting for GST Composition scheme-

  • Low compliances need to be mentioned
  • The rate of concession is 5%
  • Credits are available on food or outdoor catering (given the condition that it is used for a similar line of business)
  • Credits are available on GST paid on procurements

Recent Changes implemented are:

  • The maximum late fee is charged is limited to Rs. 500 for Nil filing and Rs. 2000 for another filing
  • The due date of filing is extended to 31st July
  • The interest rates (9%,  reduced rate) have been made and were not charged until 3rd May 2021. After that from 18th June, the rates will be charged at 18%

 

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Composition Scheme Rules

A wide range of individuals are covered under the composition scheme, but entities like-

  • Casual Taxable person
  • Non-resident taxable person
  • Individuals or businesses supplying through e-commerce operator
  • Businesses or Individuals making the inter-state supply of goods
  • Individuals or businesses purchased goods from unregistered supplier 
  • Suppliers who are involved in the supply of goods that are exempt 

Note: Individuals who have taken this scheme are not eligible to sell goods/ services to consumers outside the state.

The Tax Rate for GST Composition Scheme

There are three rates that are proposed in the composition scheme. The rates and their details are:

  • For Manufacturers; Rate is 2%
  • For eligible individuals who are engaged in any other supply; the Rate is 1%
  • For suppliers (mentioned in clause (b) of para 6 of Schedule II of the GST Act); Rate is 5%

New Registration

  1. Under the top tab, Services > Registration. Select the “New Registration” radio button. Fill in all the details asked in the window. For authentication, verification will be carried out via registered mobile and email addresses. 
  2. Click on “Proceed” 

This will create a user account in the GST portal

  1. After login to the GST portal, under the top tab navigate to Services > Registration > Application to Opt for Composition Scheme
  2. In the new window, fill the details asked (GSTIN, Legal Name of the Business, Trade Name, Address of the Principal Place of Business) 
  3. Accept the “Composition Declaration” & “Verification” by clicking on the radio button
  4. Fill in details- Name of Authorized Signatory & Place and click on “Save”. Click on the “Submit with either DSC” or “Submit with E-Sign”. 
  5. A pop-up will appear. Click on “Proceed”
  6. On successful filing via DSG or E-Sign, an ARN number will be generated. A confirmation message will be sent to the registered email id and mobile number of the user.

 

Effective Date for GST Composition Scheme 

The effective date for opting for the Composition scheme is-

  • Individuals already registered under the pre-GST regime
  • Registered GST person who wants to switch to composition scheme
  • Within 30 days after business or individual becomes liable for registration

After an entity has opted for the composition scheme, they have to declare stock held by them on the day of opting for the scheme. These details have to be formally mentioned in Form CMP-3 (that is, after CMP- 02). 

Steps to fill CMP-03 form are:

  1. Login to the GST portal
  2. Under the top tab, navigate as Services > Registration > Stock intimation for opting Composition Levy
  3. On the next page, click “Download Template”. Download & unzip the file and open the excel file.
  4. Enable the editing feature in the excel file and enter the GSTIN.
  5. Now click on the “Insert Rows”. Mention the number of rows you want to enter in the excel 
  6. In excel, the stocks details have to divide into two sections that are- Purchases from registered dealers & Purchases from unregistered dealers
  7. Click the “Validate” button (rectify again in case of any mistake)
  8. Click “Generate File to Upload”. Upload the excel file. On successful completion, a pop-up message will be displayed
  9. Login to the GST portal again. Go to the section “Stock intimation for opting Composition Levy”. Click on “Choose file”  and then click “Upload and Validate” 
  10. Check the section, “Details of tax paid” and then click on “Update Ledger Balance”
  11. At the last checkmark, the “Verification checkbox” and put “Name of Authorized Signatory and Place”. Submit via Digital Signature or Electronic Verification Code. 

(Note: A confirmation cum successful message will be displayed along with the Application Reference Number 

 

Opt-Out of Composition Scheme

Just like the GST council has given the option to people to opt out of the GST, similarly, one can also opt out of the composition scheme by filing CMP- 04. Three conditions or cases when an individual opt-out from the composition scheme:

  • Turnover exceeds
  • On voluntary basis
  • Composition scheme compliances are failed to be met

CMP-4 has to be filed within 7 days from the date when one plans to opt out.

With the following simple steps, anyone can carry out the CMP-04 filing process easily.

  1. Go to the GST portal 
  2. Under the top tab navigate, Services > Registration > Application for withdrawal from Composition Levy
  3. Choose the reason for withdrawal from the list. 
  4. Click on the check-box to acknowledge the information submitted above. Enter “Name of Authorized Signatory and Place” and click on “Save”

For self-assessment or to declare the details & summary for a given quarter entity has to fill CMP- 8 along with file Form GSTR- 4. Before the 18th of the month succeeding the quarter of the specific year, the due date is scheduled. 

The delay in filing of GSTR- 4 results in a penalty fee of Rs. 200/ day and the maximum penalty are Rs. 5000. 

(Note: In case CMP- 08 is not filed for two consecutive months then the e-way bill gets blocked)

In case of entity has nil return on its accounts then it can file Nil CMP-8 via SMS. For any further details contact HA to get all GST formalities carried out.

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