Want to Register under Composition Scheme in GST? Check your Eligibility
Businesses have to balance between managing their business and strive towards profitable venture. At the same time, caution and care is required towards compliance to various laws of the land. Over the past decade, with compliance in our country, though have taken the technology route, the amount of information to be furnished has increased. This naturally calls for dedicated time on the compliance front as they have a periodic deadline.
India is predominantly an SME oriented business environment. This transpires to limitation of resources of 3M: men, money and materials, and an elaborate compliance will be a costly affair for small segment of businesses.
The process of maintaining numerous records, monthly payments, filing of monthly return, and so on, is too much for small traders who are trying further their business. As a result, in GST, a scheme called Composition Scheme is introduced.
Under this scheme, you are required to file your returns, and pay tax at a certain percentage of the turnover on a quarterly basis. This means, on outward supplies (sales), you will not be allowed to charge GST. Instead, you need to pay at fixed percentage on a quarterly basis and also you will not be eligible to claim input tax credit on your inward supplies (purchases).
Also Read: Composition scheme – Impact on SMEs
|Composition Scheme Rate|
|Supplier of food or drinks for human consumption||5%|
The following will help you to Check Your Composition Eligibility for registering under Composition Scheme:
1. Threshold Limit of your turnover in previous financial year
To apply for Composition Scheme, your turnover in previous financial year should not exceed Rs. 1 crore. If your business is located in any of these States: Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh, the turnover in previous financial year should not exceed Rs. 75 Lakh.
2. Not applicable for service providers
If you are a service provider, you cannot opt for composition scheme in GST. However, if you are a service provider engaged in supply of food and drinks for human consumption, you will be allowed to opt for Composition Scheme.
3. Not applicable for a manufacturer of Notified Goods
The scheme will not be applicable to the manufacturer of ice cream and other edible ice, Pan Masala, all goods of tobacco and tobacco substitutes.
4. Limitation on Supply of Goods
If your business is engaged in any of following supplies, composition scheme is not for you:
• Interstate outward supply of goods.
• Supply of non-taxable goods.
• Supply through e-commerce businesses such as, Amazon, Flipkart, and so on.
5. Eligibility on the basis of Closing Stock
The closing stock held by you should not contain any stock made from the following purchases:
• Interstate Purchase, Imported from outside India or received from your branch/Agent/Principal located outside the State: This is exclusively applicable for a business who were registered under earlier regime and wanted to opt for the Composition Scheme on migrating to GST.
• Purchases from Unregistered Dealer (URD) – If closing stock contains purchases made from an unregistered dealer, you have to pay GST on reverse charge basis.
6. If Your business is registered as Casual Taxable Person or a Non-Resident Person, you cannot apply for Composition Scheme under GST.
Only when all of the above conditions are met, you will be eligible for GST registration as a Composition Dealer.
Once you have met the above criteria, you need to file an intimation in the following forms:
1. Form GST CMP-1: A business who has registered under earlier regime and who wanted to opt for Composition Scheme on migrating to GST.
2. Form GST CMP -2: This is applicable for those businesses who have registered under GST regime as a regular dealer and wanted to opt for Composition Scheme. The intimation via this form needs to be done before the commencement of financial year.
Note : The facility of availing composition under the increased threshold of 75 Lakhs and 1 crore as discussed above willl be available to both migrated and new taxpayers up to 31.03.2018
Business applying for fresh registration in GST, and wanted to opt for Composition Scheme, can provide the intimation while the submitting registration Form GST REG -1.
The Composition Scheme, for sure will provide easier compliance for small businesses. But it is advisable to evaluate the implication of these conditions and restrictions on your business, and accordingly make decisions.
Generally, small businesses such as B2C, would greatly benefit from this scheme. In case of B2B environment, your business customer would not want to buy from you as they will not get the benefit of input credit. You would be uncompetitive as your input credit would translate into cost of the product for a B2B entity.
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Author: Yarab AYarab is associated with Tally since 2012. In his 7+ years of experience, he has built his expertise in the field of Accounting, Inventory, Compliance and software product for the diverse industry segment. Being a member of ‘Centre of Excellence’ team, he has conducted several knowledge sharing sessions on GST and has written 200+ blogs and articles on GST, UAE VAT, Saudi VAT, Bahrain VAT, iTax in Kenya and Business efficiency.
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