Goods and Service tax has been rolled out in India on 1st July 2017. It is one of the biggest tax reforms in the history of India. India as a nation has accepted this regime wholeheartedly. It has subsumed all the indirect taxes applicable earlier. Also, it has converted the whole nation into a single market. But with the introduction of GST the compliance requirement has also been increased drastically as now a total of 37 returns are required to be filed annually. A totally electronic system has been facilitated under the GST regime.

Big business units have a number of resources thus it is easier for them to comply with the various requirements of GST. Whereas small business unit owners lack the expertise and knowledge required to meet such a complex compliances requirement. To help the small business unit the government has provided an option of composition scheme to them. This option was also available under the VAT regime.  With the composition scheme the small Business units can obtain GST Registration seamlessly and file the GST returns.

Key Features

  • Anybody whose annual turnover is rupees Rs 1.5 crore or less can opt for this scheme. In case of North eastern states and Himachal Pradesh the Limit is now 75 Lakhs rs.
  • It is a voluntary scheme.
  • A fixed percentage of 1% is applicable for the manufacturer, 5% for restaurants owners and 6% for other services opting for this scheme.
  • This scheme is only applicable on intra state supplies and not on interstate supply.
  • Service providers are also eligible to opt for this scheme.
  • Dealers who collect Tax Deducted at Source
  • Taxpayers who will be registered under this scheme won’t be allowed to take input tax credit.
  • The taxpayer registered under this scheme has to mention the words ‘composition taxable person’ on every notice or signboard displayed prominently at their place of business.
  • Composition scheme is levied for all business verticals with the same PAN. A taxable person will not have the option to select composition scheme for one, opt to pay taxes for other.

Advantage of Composition Scheme

Composition scheme is beneficial for small scale business enterprises as compliances requirements are very less as compared to paying normal GST. As under the GST regime, a total of 37 returns is required to be filed annually while only quarterly returns are required to be filed by people opting for composition scheme. Moreover, composition scheme will reduce the tax liability of small scale business owners.

Disadvantages of Composition Scheme

As every coin has two sides there are some disadvantages associated with this scheme.  The main disadvantage is that people registering under this scheme would not be allowed to take input tax credit.  Also, the interstate business cannot be facilitated under this scheme. In addition to this, he has to pay the amount of tax from his own pocket as he is not allowed to charge it from customers.

Transitional Provisions

If a person who is registered under the composition scheme ceases to come under the scope of this scheme and become eligible to pay taxes as regular taxpayer then he is eligible to take Input Tax Credit in respect of inputs held in stock and inputs contained in semi-finished and finished goods held in stock as on the day immediately preceding the day on which he becomes liable to pay tax under regular scheme.  In the visa versa case the taxpayer needs to pay an amount by way of debiting in the electronic credit /cash ledger equivalent to Input Tax Credit in respect of inputs held in stock and inputs contained in semi- finished and finished goods held in stock as on the day immediately proceeding the day of such switch over.

Which returns are required to be filed by the Composition dealer?

A taxpayer registered under the composition scheme is required to file the quarterly return GSTR- 4 by the 18 of the month ending the relevant quarter.