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The Goods and Services Tax (GST) will usher in a new era of company compliance in India. Large enterprises now have the resources and experience to meet these demands. Startups with Small and Medium Enterprises (SMEs) struggle to meet these requirements. To address such problems, the government has implemented a Composition Scheme under GST.
The composition scheme allows small taxpayers to avoid unnecessary GST processes and pay the tax at a set rate based on their business turnover. A taxpayer will pay tax as a proportion of his or her turnover during the fiscal year under this plan, without the advantage of the Input Tax Credit. The CGST and SGST floor rates shall not be reduced to 1%. A taxpayer who chooses the composition plan will not collect any taxes from his or her clients.
When a qualified taxpayer chooses the GST Composition Scheme, he or she must file summarised returns quarterly rather than three monthly filings (as applies for normal businesses). The Composition scheme is available to small businesses with turnovers below Rs. 1.5 crore (Rs. 75 lakhs for Special Category States).
To register for the composition scheme, the owner must complete FORM GST CMP-02 and provide information of ITC relating to inputs, semi-finished/finished items held in stock (within 60 days of the start of the fiscal year) in FORM GST ITC-3.
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Composition scheme does not apply to:
GSTIN is a unique 15-digit alphanumeric identifier assigned to each registered Firm/Company/Individual under GST.
The government has made certain that everything under GST is digital in order to maximise openness while minimising corruption.
The first two digits of the GSTIN reflect the state code, as determined by the 2011 census.
The entity’s PAN number is the following ten digits.
By default, the 14th digit is Z.
The Checksum digit is the 15th or final digit. It appears as a result of the computation of the other 14 digits.
The GST rates applicable under Composition Scheme includes:
Particulars | GST Rate |
Manufacturers and traders | 1% of turnover |
Restaurants not serving alcohol | 5% |
Other service providers | 6% |
No, the composition dealer is not required to keep detailed records for GST reasons.
The composition dealer cannot issue an invoice under this method. This is due to the dealer’s inability to charge tax to its consumers. Furthermore, composite merchants must pay their own taxes and are not eligible for input tax credits. As a result, these dealers can issue bills of supply. At the top of the bill of supply, the dealer mentions “composition taxable person, not eligible to collect tax on supplies.”
