GST INDIA DAILY

GST REGISTRATION SERIES – PART 9

Last week we have gone-;through overview of registration under GST. Read the Part 8 of registration under GST, Link as follows:

https://gstindiadaily.wordpress.com/2020/09/20/5-8-registration-under-gst-act/(opens in a new tab)

REGISTRATION UNDER COMPOSITION SCHEME:

INTRODUCTIONS:

As per the GST law, generally a tax payer pays tax under normal rates i.e 5%, 12%, 18%, 28% and avails cenvat credit on inputs, input services and capital goods. The balance tax payable after claiming the cenvat is paid in cash to the government. Using this method all the procedural compliances have to be adhered to.

To decrease the burden of compliance and legal formalities, there is a provision under GST to register under composition scheme. This composition scheme is almost similar to the composition schemes prevalent in previous vat regime in almost all states. It gives the tax payer to pay tax  at a flat rate without claiming input credit and makes the procedural compliance very easy.

PERSONS ELIGIBLE TO REGISTER UNDER COMPOSTION SCHEME:

Only persons who deals in goods can opt for such scheme.  Manufacturers can also opt for composition scheme, although manufacturers of ice-cream, pan masala and tobacco are not eligible for this scheme..  Service providers are kept outside the scope of the scheme, although restaurants who does not serve alcohol can opt for the composition scheme.

Persons whose Aggregate Turnover in the preceding financial year doesn’t exceeds Rs. 1.5 crore are only eligible under this scheme. For persons in state of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Himachal Pradesh this limit will be Rs. 75 lakhs. Aggregate turnover means aggregate value of all taxable and non-taxable supplies, exempt supplies and export of goods and/or services of a person having same PAN. GST is not included in the aggregate turnover. So if an individual open two firms and combined turnover is more than above mentioned limit then he can not take composition scheme.

If a person’s turnover exceeds the above mentioned limits in a financial year then from such day the person ceases to be in composition scheme and needs to pay tax under normal scheme from such day.

If a person wants to opt for the composition scheme, then all of his firms should opt for composition scheme. It is not allowed that some of his firms are in composition scheme and some are not. If one of the firms becomes ineligible for composition scheme, then all other firms also become ineligible.

Person should not make inter state sales of goods. Such person is only allowed to make intra-state sales, i.e., in the same state or union territory in which firm is registered.

PERSONS NOT ELIGIBLE TO REGISTER UNDER COMPOSITION SCHEME:

• Person should not make sales through any e-commerce portal like Amazon or Flipkart.
• Casual taxable person and non-resident taxable person can not register under composition scheme.

RESTRICTIONS ON PERSONS REGISTERED UNDER COMPOSTION SCHEME:

• Such person can not make inter state sales.
• Such person can not make sales of exempted goods.
• Such persons shall not be entitle to input tax credit. Net tax payable =  Turnover multiplied by Composition Rate
• Such person also breaks the input credit chain so it also cannot pass the input tax credit. In other words if another dealer purchases goods/services from composition dealer then such dealer also can not take input tax credit. So composition scheme is not suitable for wholesalers and B2B businesses.
• Such person can not charge composition tax separately in the invoice issued.
• Such person can not make sales through any e-commerce portal like Amazon or Flipkart.
• Such person is liable to pay tax on purchases of goods or services from un-registered persons and on import of services under reverse charge, Such tax is be calculated using the normal GST rates and CGST and SGST will apply even if purchase is from outside state.
• Such person should mention the words “composition taxable person, not eligible to collect tax on supplies” at the top of the bill of supply issued by him.
• Such person shall mention the words “composition taxable person” on every notice or signboard displayed at a prominent place at his principal place of business and at every additional place or places of business.

GST RATE UNDER COMPOSITION SCHEME:

GST INDIA DAILY

GST RETURN AND PAYMENT:

Persons in composition scheme are required to file quarterly returns and also pay GST on quarterly basis. All other normal dealers are required to file monthly returns and also make monthly payment.

Due date for return filing and also for GST payment is 18 days from the end of the quarter. Such quarterly return is to be filed in Form GSTR-4 (Now CMP-08) . An annual return is also to be filed in Form GSTR-4 on or before 31st December after the end of the financial year.

BENEFITS OF REGISTERING UNDER COMPOSITION SCHEME:

LESS COMPLIANCE: Composite dealer has to file quarterly returns and make quarterly payment while normal dealers has to file monthly returns and make monthly payments. Record keeping work also decreases to a substantial level.

LESS COST TO CUSTOMER:If the person has a high margin, then the cost to the final customer also decreases if he opts for composition scheme.

GST INDIA DAILY

DRAWBACKS OF REGISTERING IN COMPOSITION SCHEME:

SUCH PERSON CANNOT MAKE SALES THROUGH E-COMMERCE OPERATOR As discussed above the person registered in this scheme can not make sales through an e-commerce operator like Flipkart, Amazon etc. So composition scheme is not for those who are making online sales or planning in near future.

NOT SUITABLE FOR WHOLESALERS Such persons can not pass the input tax credit and any other dealer would not like to purchase from such person. If any dealer wants to purchase goods from such person, then it would amount to double taxation and will increase costs.

CANNOT MAKE SALES OUTSIDE STATE Such person can not make sales outside the state or union territory in which he is registered. This decreases the scope for the business.

HEAVY PENALTY If the person is not eligible to register under composition scheme but continue to do so then the officer may ask to deposit tax at standard rates and penalty equal to tax. If person makes a mistake in following the eligibility criteria then he may be liable for a very hefty penalty.

STAY TUNED TO THE RIDE OF GST WAVE

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THANKS

MANIMARAN KATHIRESAN ( ON BEHALF OF GST INDIA DAILY TEAM)