It is important for businesses to understand the GST Composition Scheme Rules to carefully evaluate their eligibility and weigh the advantages against any potential limitations associated with this simplified tax structure. The GST Composition Scheme is aimed at providing a supportive framework for small businesses, contributing to ease of compliance and fostering their growth within the GST regime.
GST Composition Scheme Rules – How to opt?
If a taxpayer is eligible for the GST Composition scheme and opts to avail the scheme, the person has to file an application under Form GST – CMP – 02 prior to the beginning of the financial year to opt for the GST Composition Scheme.
If the Form GST – CMP – 02 is filed during the year, then the scheme will be applicable for the person from the month succeeding the month in which the form was filed.
Example – A tax payer opts for the GST Composition scheme by filing the Form GST CMP – 02 in December, 2022, then it will be applicable for the person from January, 2023.
GST Composition Scheme Rules – Form CMP – 02
As per the GST Composition scheme rules, Form GST – CMP – 02 is an intimation that the person wants to pay tax under the GST Composition scheme.
Steps to file Form GST – CMP – 02
- Login to the portal
- Go to Services > Registration > Application to opt for composition levy
- In the form, fill the ‘Name of the authorized signatory’ and the ‘Place’
- Select ‘Composition Declaration’ and ‘Verification’
- For companies and LLPs, form can be submitted by using DSC only. However, other persons can submit the form using DSC, EVC or e-signature.
- Click on ‘Proceed’
- You will receive an acknowledgment on your registered e-mail address and phone number.
After filing Form GST – CMP – 02, the person will have to file Form GST – CMP – 03 within 90 days from the date of submission of Form GST – CMP – 02.
GST Composition Scheme Rules – Form CMP – 03
As per the GST Composition scheme rules, in Form GST – CMP – 03, the person has to submit details of the stock in hand as on the date of opting into the scheme.
Once the taxpayer has opted for the GST Composition scheme and the person has submitted Form GST CMP – 02, the person as to file Form GST – CMP – 03 within 90 days.
Steps to file Form GST – CMP – 03
- Login to the portal
- Go to Services > Registration > Application for Composition levy
- Download the template in excel and open the file
- Enter your GSTIN and insert the required number of rows
- In Point no. 7, put the details of purchases from registered dealers
- In Point no. 8, put the details of purchases from unregistered dealers
- Validate the sheet and post validation, generate the file to upload
- Login to the portal again
- Again Go to Services > Registration > Application for Composition levy
- Select the option ‘Choose the file’ and upload and validate the file
- On uploading the file, Tax Payable on the stock is calculated and displayed under ‘Details of tax paid’. Click on ‘Update Ledger Balance’.
- Thus the tax payable in the E – Liability ledger will increase which has to be paid by the E- Cash ledger
- Fill in the details of the authorized signatory and sign the form with the DSC or EVC and submit Form GST – CMP – 03. An Application Reference Number (ARN) will be generated.
Once the application for GST Composition scheme is approved, the person can start carrying out business as a composition dealer.
Returns to be filed as per the GST Composition scheme rules
As per the GST Composition scheme rules, the composition dealer has to file quarterly returns in a challan-cum-statement format in Form GST – CMP – 08 by the 18th of the month succeeding the quarter end and an annual return in Form GSTR – 4.
As per Notification No. 02/2023 dated 31.03.2023 regarding waiver of late fees for composition dealer, Late fees in case of FORM GSTR-4 for the periods from July-2017 till F.Y 2021-22 has been waived completely in case of NIL GST returns.
It has been reduced to Rs. 500/- in other cases provided the said returns are filed between 01.04.2023 to 30.06.2023.
GST Composition Scheme Rules – Validity
The composition dealer can continue in the scheme as long as he is eligible for the scheme as per the GST composition scheme rules.
What action can be taken by the proper officer for contravention of any provisions of composition levy and how?
Where any contravention is observed by the proper officer wherein the registered person was not eligible to pay tax under the composition scheme or has contravened the provisions of the CGST Act, 2017 or provisions of Chapter II of the CGST Rules, 2017, he may issue a notice to such person in FORM GST CMP-05 to show cause within fifteen days of the receipt of such notice as to why the option to pay tax under the composition scheme shall not be denied.
Upon receipt of the reply to the said show cause notice in FORM GST CMP-06, the proper officer shall issue an order in FORM GST CMP-07 within a period of thirty days of the receipt of such reply, either accepting the reply, or denying the option to pay tax under the composition scheme from the date of the option or from the date of the event concerning such contravention, as the case may be.
Can a person paying tax under composition levy, withdraw voluntarily from the scheme?
Yes. The registered person who intends to withdraw from the composition scheme can file a duly signed or verified application in FORM GST CMP-04.
GST Composition scheme – Compulsory withdrawal
A taxpayer who fails to opt out of the scheme within 7 days of the disqualifying event, can be removed out of the scheme by the Tax officials by issuing a Show Cause Notice to the taxpayer.