GST Return Filing (Composition Scheme)

GST Return Filing under the Composition Scheme: A Comprehensive Guide

The Composition Scheme under the Goods and Services Tax (GST) regime in India is a simplified scheme designed for small taxpayers with a lower turnover. It aims to reduce the compliance burden by offering a simpler return filing process and a lower tax rate. This comprehensive guide explains the intricacies of GST return filing under the Composition Scheme, including eligibility, return forms, due dates, benefits, and important considerations.  

What is the Composition Scheme?

The Composition Scheme is an optional scheme under GST for small businesses with an annual turnover up to a specified limit (currently ₹1.5 crore for most states and ₹75 lakh for special category states, although this is subject to change based on government notifications). This scheme allows eligible businesses to pay tax at a lower rate on their turnover instead of collecting GST from their customers and claiming Input Tax Credit (ITC).  

Eligibility for the Composition Scheme:

To be eligible for the Composition Scheme, a business must meet the following criteria:

• Turnover Limit: The aggregate turnover in the preceding financial year should not exceed the prescribed limit (₹1.5 crore or ₹75 lakh).
• Nature of Business: Certain businesses are excluded from the Composition Scheme, including:
  • Businesses engaged in inter-state supplies.
  • Manufacturers of certain specified goods (e.g., ice cream, pan masala, tobacco).  
  • Casual taxable persons.
  • Non-resident taxable persons.
  • Suppliers providing services other than restaurant services (with certain exceptions).
  • Businesses supplying goods through e-commerce operators who are required to collect TCS.  

Key Features of the Composition Scheme:

• Lower Tax Rate: Composition taxpayers pay tax at a lower rate (e.g., 1% for traders, 5% for restaurants, 1% for manufacturers) on their turnover.  
• No Input Tax Credit (ITC): Composition taxpayers cannot claim ITC on their purchases.  
• Simplified Return Filing: Composition taxpayers are required to file only one annual return (GSTR-4) and make quarterly payments.  
• No Tax Invoice: Composition taxpayers issue a “Bill of Supply” instead of a tax invoice.  

GST Return Filing under the Composition Scheme:

Unlike regular taxpayers who file monthly or quarterly returns (GSTR-1 and GSTR-3B), composition taxpayers have a simpler return filing process.

1. Quarterly Payment of Tax:

Composition taxpayers are required to make quarterly payments of tax using Form CMP-08. This form is a simple declaration-cum-challan that summarizes the outward supplies made during the quarter and the tax payable.  

• Due Dates for CMP-08: The due dates for filing CMP-08 are as follows:
  • Quarter 1 (April-June): 18th of July
  • Quarter 2 (July-September): 18th of October
  • Quarter 3 (October-December): 18th of January
  • Quarter 4 (January-March): 18th of April

2. Annual Return (GSTR-4):

Composition taxpayers are required to file an annual return in Form GSTR-4. This return provides a consolidated summary of the outward supplies made during the financial year and the tax paid.  

• Due Date for GSTR-4: The due date for filing GSTR-4 is the 30th of April of the following financial year.  

Key Components of GSTR-4:

GSTR-4 is a relatively simple form compared to the returns filed by regular taxpayers. It primarily includes the following details:

• GSTIN: The Goods and Services Tax Identification Number of the taxpayer.
• Aggregate Turnover in the Previous Financial Year: The total turnover of the business in the preceding financial year.  
• Inward Supplies: Details of inward supplies received from registered suppliers, including the GSTIN of the supplier, invoice details, and the total value of supplies. However, since composition dealers cannot claim ITC, these details are for informational purposes only.
• Outward Supplies: Summary of outward supplies made during the financial year, including the total value of supplies and the tax paid.
• Tax Payable and Paid: Details of the tax payable and the tax paid during the financial year.

Benefits of the Composition Scheme:

• Reduced Compliance Burden: Fewer returns to file and simpler procedures.  
• Lower Tax Rate: Paying tax at a lower rate on turnover.  
• Simplified Tax Payment: Quarterly tax payments instead of monthly payments.  
• Improved Cash Flow: No need to collect GST from customers, which can improve cash flow for small businesses.  

Limitations of the Composition Scheme:

• No Input Tax Credit (ITC): Cannot claim ITC on purchases, which can be a disadvantage for businesses with significant input tax.  
• Restriction on Inter-State Supplies: Cannot make inter-state supplies.  
• Limited Business Scope: Not available for certain types of businesses, such as manufacturers of specified goods and service providers (with exceptions).  

Important Considerations for Composition Taxpayers:

• Eligibility Criteria: Ensure that the business meets all the eligibility criteria for the Composition Scheme.
• Turnover Limit: Monitor the turnover regularly to ensure it does not exceed the prescribed limit.
• Accurate Record Keeping: Maintain accurate records of all sales and purchases, even though detailed invoice-level reporting is not required.
• Timely Filing of Returns and Payments: File CMP-08 and GSTR-4 on time to avoid late fees and penalties.
• Switching to Regular Scheme: If the business grows and needs to make inter-state supplies or claim ITC, it can opt out of the Composition Scheme and switch to the regular scheme.

Comparison between Composition Scheme and Regular Scheme:

Conclusion:

The Composition Scheme offers a simplified tax regime for small taxpayers, reducing their compliance burden and allowing them to focus on their business operations. By understanding the eligibility criteria, return filing process, benefits, and limitations of the scheme, small businesses can make an informed decision about whether to opt for the Composition Scheme or the regular scheme. Accurate record-keeping and timely filing of returns are crucial for maintaining compliance and avoiding penalties. If facing complexities or uncertainties, consulting with a tax professional is recommended.