Composition scheme is meant to make the life of small businesses easier. It’s an option wherein a taxpayer can opt to pay a fixed percentage of turnover as fees in lieu of tax and get relief from complying with other provision of law.
Below are the important points:
Precondition
Those having a turnover up to 1.5 crores can opt for composition scheme. For the purpose of calculating the turnover limit, all businesses with the same PAN number will be taken together to add up the turnover. If you want to opt for composition scheme then intimation has to be given to the Government at the beginning of every financial year.
The Only Manufacturer Of Goods, Dealers, And Restaurants (Expect Those Who Serves Alcohol) Can Opt For Composition Scheme.
Service Providers Cannot Opt For Composition Scheme.
Invoicing:
In the case of composition dealer, there is No tax invoice. They will issue a bill of supply instead. GST will be paid by the dealer himself and not charged from the customer.
GST Rates:
- Manufacturers and Traders: 1%
- Restaurant not serving alcohol: 5%
Return under GST Return:
Quarterly return GSTR-4 – Due date is 18th of the month after the end of the quarter.
Annual return GSTR-9A – Due date is 31st December of next financial year.
Is a composite dealer required to pay tax under reverse charge mechanism?
Yes, if it is applicable to the dealer, The rate will be normal tax rates as prescribed under GST and not that of the composition scheme.
NOTE: Composition dealer is not required to pay IGST. The dealer is required to pay tax under reverse charge, import if services or purchase from unregistered dealer-only SGST and CGST.
Input Tax under composition scheme
No input tax credit is available to a composition dealer.
No ITC also for the tax paid under reverse charge mechanism
Since composition scheme is not allowed if a person has an interstate transaction, is a person allowed to take credit in transition if the said person was earlier registered as a composition dealer in VAT and as a normal taxpayer under GST?
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YES, Invoice should not be dated before 1st July 2016 and other specified conditions must be followed.
Thankx for reading!
Chartered Accountant by profession, CA Sanket Agarwal has an experience of above11 years in Cross Border compliance , Import Export , International Taxation & is a passionate content creator.