Composition Scheme for FY 2021-22

Composition Scheme for FY 2021-22

Composition scheme is a simplified form of GST, where registered persons with low turnover may opt to pay a prescribed rate of tax as GST (reduced rate), without the hassles of book keeping etc. In this article we are discussing about the updated information about the composition scheme in F.Y 2021-22.

All you want to know…

What is composition scheme?

If a registered person opts for composition scheme, then such person shall pay a composite rate of tax (lower rate than the normal rate of GST) on the entire turnover, and sway away from the hassles of GST compliance. This scheme offers a simplified form of compliance to small scale registered persons.

Who can opt for composition scheme?

Only those registered persons whose aggregate turnover is less than Rs. 1.5 Crores in the previous financial year may opt for composition scheme. However, in the case of special states, the limit is Rs. 75 lakhs. Special states for this purpose includes Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura & Uttarakhand.

Who cannot opt for composition scheme?

The following registered persons cannot opt for composition scheme, even if their annual turnover is below Rs. 1.50 Cr (or Rs 75 lakhs as the case may be).

  • Manufacturer of ice cream, pan masala, or tobacco
  • A person making inter-state supplies
  • A casual taxable person or a non-resident taxable person
  • Businesses which supply goods through an e-commerce operator

Can service providers opt for composition scheme?

As a general rule, service providers does not fall under the ambit of composition scheme. However, most of the traders / manufacturers will have a small volume of supply of services, which may be incidental to their main activity of supply of goods.

Therefore, in order to extent the benefit of this scheme to such persons also, the government amended the provisions of composition scheme. Now, a composition dealer can also supply services to an extent of 10% of their annual turnover, or Rs. 5 lakhs, which ever is higher.

Other than the above, no other service provider can opt for composition scheme.

However, a special scheme has been implemented w.e.f 1st April, 2019, whereby service providers with annual turnover less than Rs. 50 lakhs can pay a fixed rate of GST on the turnover, similar to the composition levy.  Though this scheme look like ‘composition scheme’, this scheme is a totally different scheme.

How to opt-in for Composition Scheme:

If you want to opt-in for composition scheme for FY 2021-22, you shall file the application in Form GST CMP – 02, through the GST portal. This application should be filed on or before 31st March, 2021.  

How to file the application in the GST portal?

The taxpayers may navigate as follows:

Log-in>Services > Registration > Application to opt for Composition Levy>Filing form GST CMP-02>File application under DSC/EVC

Once Form GST CMP-02 application is filed, the composition scheme will be available to the taxpayer, w.e.f. 1st April 2021.

I had applied for composition levy in FY 2020-21. Should I opt in for FY 2021-22 again?

If you have already opted for ‘composition scheme’ in FY 2020-21, you need not again file the application for FY 2021-22. Such composition dealers can continue under the scheme for FY 2021-22 also.

However, those taxpayers who were regular taxpayers in previous FY, but are opting-in for composition scheme for 2021-22, must file application in Form GST CMP – 02. Once the application is approved, such persons shall file Form GST ITC-03 for reversal of ITC on stocks of inputs, semi-finished goods and finished goods available with them, within 60 days from the effective date of opting in.

Applicable tax rates for Composition Dealers

The registered persons (other than service providers) who have opted for composition scheme shall pay GST at the rates prescribed in the table below:

Category of registered personCGSTSGSTTotal
Manufacturer & traders (goods)0.5%0.5%1.0%
Restaurants not serving alcohol2.5%2.5%5.0%

Should you maintain detailed records?

No. Once you have opted for composition scheme, you need not keep detailed records as that of a normal registered person. However, you shall keep all those records and books of accounts to substantiate your annual turnover (for eligibility of the scheme).

Can a composition dealer collect GST?

No. As per the provisions of law, the composition levy is payable from the pocket of the registered person. They cannot collect the GST from the customer.

Can a composition dealer avail Input Tax Credit?

No, a Composition Dealer is not allowed to avail input tax credit of GST on purchases.

Can a Composition Dealer issue Tax Invoices?

A Composition Dealer has to issue Bill of Supply. They cannot issue a tax invoice. This is because the tax has to be paid by the dealer out of pocket. A Composition Dealer is not allowed to recover the GST from the customers.

For queries & clarifications contact us at [email protected]

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