Composition Scheme: Detailed Rules and Procedure under GST

Composition Scheme has attracted much attention in GST. Small traders (Turnover upto Rs. 50 Lakhs annually) have been attracted to the scheme as the taxpayer will have to file one return every 3 months instead of 3 returns per month. 

The attraction increased further when the final GST bills provided a favourable rate of tax. However, suppliers under Composition Scheme have not been exempted from paying tax on supplies received from unregistered persons. 

The GST Council in its meeting on 31st March 2017 finalised the draft Composition Rules. The same were released in public domain on 1st April 2017. It is thus now possible to judge the Pros and Cons of the scheme, as well as the procedure.

Pros:

1. Only one return every 3 months, instead of 3 returns every month. 

2. No need for credit documentation. 

Cons:

1. No input credit for the trader under the scheme as well as the recipient. 

2. Cannot deal in non-taxable goods. 

3. Cannot supply interstate. 

4. Cannot supply through e-commerce operator. 

5. Cannot recover tax from recipient. 

6. Has to pay tax on OPENING to the extent purchased from unregistered persons. 

7. Opening stock should not include any inter-state purchases. 

Common Compliances

1. Pay tax (CGST +SGST) on reverse charge basis on all INWARD supplies of goods and services from Unregistered persons .

2. Upload Invoice-wise details of all inward supplies, including that from Unregistered suppliers.

3. Submit 2 forms to generate e-way bill for every supply above Rs. 50,000/= within the state. 

Tax Rates

2% on Manufacturers (1% CGST, 1% SGST)

5% for Restaurants (2.5% CGST, 2.5% SGST)

1% for Traders (0.5% CGST, 0.5% SGST)

Service providers other than restaurants are not eligible under the Scheme. 

Procedure:

1. File Form GST CMP-01 within 30 days intimating intent of opting for Composition Scheme. 

2. File Form GST CMP-03 within 60 days detailing opening stock, including inward supply from unregistered persons. PAY TAX on OPENING stock purchased from unregistered person. 

3. In Quarterly Return GSTR-4A, file invoice-wise all inward supplies of goods and services, including unregistered supplies. Pay tax on inwards from unregistered persons.

4. If Turnover crosses the limit (Rs. 50 Lakhs), file Form GST CMP-04 within 7 days. If withdrawing from Scheme by choice, file Form GST CMP-04 before withdrawing. 

5. File Form GST ITC-01 within 30 days for credit on stock on date of exit from Composition scheme.

Also Note:

1. If the taxpayer has multiple registrations under the same PAN, either all or none will fall under Composition Scheme. Intimation for one registration is deemed to be intimation for all registrations.  

2. For the limit of Rs. 50 lakhs, total turnover against a single PAN is considered. 

3. Supplier under Composition Scheme will issue 'Bill of Supply' instead of "Tax Invoice'.