GST Composition Scheme, Meaning, Eligibility, Advantages

The GST Composition Scheme is a boon for small taxpayers who wish to avoid the complexities of regular GST compliance. Designed to ease the tax burden and reduce formalities, this scheme allows eligible taxpayers to pay GST at a fixed rate based on their turnover. Whether you’re preparing for CA exams or a professional aiming to understand GST, this article will provide you with a detailed breakdown of the GST Composition Scheme, its benefits, limitations, and application process.

What is the GST Composition Scheme?

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Who Can Opt for the GST Composition Scheme?

Eligibility Criteria

Eligible Businesses

• Manufacturers (excluding specified categories like ice cream, pan masala, and tobacco)
• Small traders
• Restaurants (excluding those serving alcohol)

Businesses Excluded

• Inter-state suppliers
• E-commerce operators required to collect TCS
• Non-resident taxable persons and casual taxable persons
• Manufacturers of notified goods such as ice cream, tobacco, and pan masala

Also Read: Accounting for Branches

How to Opt for the GST Composition Scheme?

Log in to the GST Portal: Begin by logging in with your credentials on the GST portal.

File Form GST CMP-02: Navigate to the services section and select the option to opt for the Composition Scheme. Fill out and submit Form GST CMP-02.

Declaration: Submit a declaration confirming compliance with the scheme’s conditions.

Maintain Records: Ensure all invoices are marked as “composition taxable person” and follow the guidelines for raising a bill of supply.

Advantages of the GST Composition Scheme

• Reduced Compliance: The scheme eliminates the need for maintaining detailed records and frequent filings, allowing businesses to focus on their core operations.
• Lower Tax Liability: Taxpayers benefit from a fixed, lower rate of taxation, enhancing liquidity.
• Simplified Procedures: By paying tax out of their earnings and avoiding ITC complications, businesses experience fewer procedural hurdles.
• Ease of Business: Designed with small businesses in mind, the scheme fosters a conducive environment for growth and stability.

Limitations of the GST Composition Scheme

• Restricted Business Operations: Taxpayers under the scheme cannot engage in inter-state supplies.
• No Input Tax Credit (ITC): Businesses cannot claim ITC on purchases, which may increase operational costs.
• Ineligible Goods and Services: Certain goods and services, like alcohol and e-commerce operations, are excluded from the scheme.
• Tax Burden: Businesses pay tax out of pocket since they cannot pass it on to customers via invoices.

GST Returns Under Composition Scheme

Quarterly Statement (CMP-08): Taxpayers must file a quarterly statement by the 18th of the month following each quarter.

Annual Return (GSTR-4): An annual return summarizing the year’s transactions must be filed by April 30 of the subsequent financial year.