Composition scheme FAQs

| Updated on: August 24, 2021

What is GST composition scheme?

Goods and Service Tax composition scheme is a scheme for payment of GST available to small taxpayers whose aggregate turnover in the preceding financial year did not cross ₹ 1.5 Crores. In the case of 9 special category States, this limit is ₹ 75 Lakhs in the preceding financial year, namely [ Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Himachal Pradesh. ]

However, if a taxable person is a manufacturer of ice-cream, pan masala or tobacco or tobacco products or if he is a service provider for services other than a restaurant, then such taxable person is not eligible for composition scheme.

What is composition levy?

Composition levy is an alternative method of levy of tax designed for small taxpayers whose turnover is up to ₹ 1.5 crores (Seventy-five rupees lakhs for special category States, excluding Jammu & Kashmir and Uttarakhand). It is a kind of turnover tax.

The prime motive of the scheme is to provide a simplified tax payment regime for the small taxpayers. It is optional and is mainly for small traders, manufacturers and restaurants.

Who is a composite dealer?

Any dealer who opts for Composition Scheme under CGST Act is known as a Composite dealer.

What is the validity of GST registration certificate?

The option to pay tax on turnover exercised by a registered person under the composition scheme shall remain valid so long as he satisfies all the conditions specified in the law. The option is not required to be renewed.

What is Reverse Charge Mechanism?

Reverse charge in general :

RCM or reverse charge means the liability to pay tax by the recipient of the supply of the goods or services or both instead of the supplier of such goods or services or both.

It is the only a mode of collection of CGST/SGST or IGST on Supplies of goods and services where the service receiver (may be wholly or partially) will be liable to pay CGST/SGST or IGST to Government.

GST Composition scheme and Reverse charge mechanism :

Central Goods and Service Tax Act (CGST) elaborates that, for any tax payable under reverse charge mechanism, the option of payment under composition scheme will not be available to such payments.

Any taxable person opting for composition scheme will be required to pay tax on supplies taxable under RCM at regular rates and not the composition rate.

What is GSTR 4?

GSTR4 may be referred to as details required to be filled in the return. It is a very simple return containing consolidated details of outward supplies, details of import of services or other supplies attracting reverse charge and inward supplies which shall be auto-populated.

What is GSTR 4A?

A lot a like to the GSTR-2A, GSTR-4A is generated quarterly for composition scheme taxpayers. And it contains the details of the inward supplies as reported by suppliers in GSTR - 1.

The contents of GSTR 4A are:

Goods and Services Tax Identification Number (GSTIN), Name of the Taxable Person, Address and so on auto-populated on logging, Period of Return, Inward supplies got from enlisted assessable individual, data auto-populated from counterparty GSTR - 1 and GSTR - 5, Amendments to subtle elements of internal supplies got from enrolled assessable people in before impose periods, Revised Details assuming any, credit note, and its correction etc.

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