The GST Act has specified the composition scheme for certain eligible businesses. The scheme allows businesses to avoid cumbersome GST filing rules and file their GST returns in an easier manner. If your business is eligible for the GST composition scheme, you can opt for the same and make GST filings easier.
Before you know how to opt for the composition scheme, let’s have a brief look into what the scheme is all about.
What is the Composition Scheme?
The GST composition scheme is a scheme of GST filing available to select businesses that fulfil the eligibility parameters. Under this scheme, the GST filing process becomes much easier.
Eligibility parameters for the Composition Scheme
The GST composition scheme is available for the following types of businesses –
- Businesses that have an annual turnover of up to Rs.1.5 crore in the last financial year.
- Businesses that are registered in the North-Eastern States of Manipur, Arunachal Pradesh, Tripura, Sikkim, Meghalaya, Nagaland, and Mizoram or in Uttarakhand, and have an annual turnover of up to Rs. 75 lakh in the last financial year.
- Businesses having mixed supplies or those that supply services and have a turnover up to Rs. 50 lakh in the last financial year.
Furthermore, to avail of the benefits of the composition scheme, eligible businesses should comply with the following conditions –
- They should not have availed of the Input Tax Credit.
- They should not supply goods that are outside the purview of GST, like alcohol for human consumption.
- They should pay taxes at the applicable rates under the Reverse Charge Mechanism.
- If the business has different verticals registered under the same PAN number, all the verticals should be registered under the scheme in a collective manner.
- The businesses should display the term ‘composition taxable person’ on every signboard or notice put up at their place of business.
Businesses under the composition scheme are also allowed to supply services to the extent of 10% of their annual turnover or Rs. 5 lakh, whichever is higher.
The following businesses, persons or entities cannot opt for the composition scheme –
- Taxable persons engaged in inter-State supplies or goods and/or services
- Non-resident taxable person
- Casual taxable person
- Businesses engaged in the manufacturing of pan masala, tobacco, and ice-cream
- Businesses engaged in supplying goods through e-commerce operators
Let us now see how to opt for the composition scheme.
Opting for the GST Composition Scheme
Eligible businesses interested in opting for the GST composition scheme have to notify the Government about the same. This notification can be done by filling in and submitting the relevant forms on the GST portal. The forms are as follows –
- GST CMP – 01 – This form is to be filled and submitted by a migrated taxpayer opting for the GST composition scheme.
- GST CMP – 02 – This form is to be filled and submitted by a business that intends to join the composition scheme during the middle of a financial year for the same year. In such cases, the GST composition scheme would be applicable for the business from the next month onwards. For example, if your business wants to file for the composition scheme for the financial year 2021-22 and you file the form in January 2022, the composition scheme would become available from February 2022.
Filing GST CMP – 01 and CMP – 02
GST CMP – 01 and CMP – 02 are both filed online on the GST portal. The process for filing them is as follows –
Step 1: Visit the GST portal at https://www.gst.gov.in/ and log into your respective GST account.
Step 2: Under the ‘Services’ tab, click on ‘Registration and then on ‘Application to opt for Composition Levy’.
Step 3: A new window would open containing the Composition Declaration and Verification message. Read these messages to understand the terms and conditions.
Step 4: Click on the Declaration and Verification boxes to declare that you have understood the message and you are declaring the information provided to be accurate.
Step 5: Choose the name of the authorised signatory and the place of business. Click on ‘Save’ and proceed.
Step 6: Companies or LLPs can submit the application form using the Digital Signature Certificate (DSC).
Step 7: For other taxable persons, there are three options of submitting the application form. They can use any option and proceed. The options are as follows –
- Submitting the form with a Digital Signature Certificate
- Submitting the form with e-sign
- Submitting the form with EVC
After submitting the application form, a success message would be displayed showing that the application has been successfully submitted. You would also receive an acknowledgement message on the registered email ID and mobile number.
Once the form is successfully filed, you would also have to file GST CMP – 03 within 90 days to complete the process.
Filing CMP – 03
Businesses have to declare the stock held by them on the date of opting for the composition scheme. This declaration is done by filing CMP – 03. The process for the same is as follows –
Step 1: Visit the GST portal at https://www.gst.gov.in/ and login to your account.
Step 2: Under ‘Services’ click on ‘Stock intimation for opting composition levy’.
Step 3: Click on the ‘Download Template’ button to download the form template. The download would be done in a zip file, allowing you to open it as an excel sheet.
Step 4: Enter your GSTIN and insert rows for recording your stock details. Divide your stock details into two fields – stocks purchased from registered dealers and those purchased from non-registered ones.
Step 5: Enter all the details and click on ‘Validate’.
Step 6: Click on ‘Generate File to Upload’ and the CMP – 03 file would be created. Upload this file on the GST portal. To do so, login to your GST account. Under ‘Services’ click on ‘Stock intimation for opting Composition levy’.
Step 7: Click on ‘Choose File’, choose the CMP – 03 file and choose ‘Upload and Validate’.After the file is successfully uploaded, the tax payable on the declared stock would be calculated and shown under the head ‘details of tax paid’.
Step 8: Choose ‘Update ledger balance’.The balance shown in the liability lender would increase which should be paid with the balance contained in the cash ledger.
Step 9: After successful payment, a ‘Debit entry number’ is generated.
Step 10: Click on the ‘Verification’ box. Provide the name of the authorised signatory and the place of business. Submit the form using a DSC, e-sign or EVC
Once submitted successfully, you would get the Application Reference Number (ARN) and the process would be completed.
Let us have a look at a few things that you must keep in mind while choosing this scheme.
Things to remember when opting for the Composition Scheme
Here are a few things to keep in mind when you choose the GST Composition Scheme –
- Once you opt for the scheme, it would become applicable to you from the next financial year, except in cases where you want the scheme for the same financial year.
- Once you opt for the scheme, you don’t have to apply again in the next financial year.
- If you were a regular taxpayer in the previous financial year and are now opting for the composition scheme, GST ITC – 03 should be filed for reversing the input tax credit received on stocks of raw materials or inputs, finished goods, and semi-finished goods. The form should be filed within 60 days of opting for the GST Composition Scheme.
- Businesses under the scheme cannot raise a tax invoice because they have to pay tax from their own pockets. As such, such businesses issue a Bill of Supply mentioning ‘composition taxable person, not eligible to collect tax on supplies’ on the top.
- Businesses under the scheme have to file their GST returns using CMP – 08 by the 18th of the month following the end of a quarter, i.e. for the April-May-June quarter, the last date for filing is July 18, and so on.
The composition scheme is beneficial for businesses as it simplifies the GST filing process. So, understand what the scheme is all about, whether it applies to your business, and how to opt for it if you are eligible for the same.