How to Apply for the GST Composition Scheme

GST Composition Scheme

GST Composition Scheme

Understanding the composition scheme under GST can significantly help individuals who have smaller businesses as it becomes more convenient and cost-efficient for them. So, if you are willing to take advantage of the benefits offered in this scheme, this guide will help you understand the process and how to apply for the GST composition scheme. This scheme aims to reduce the tax burden on small businesses and make GST compliance easier.

What is Composition Scheme Under GST?

The composition scheme under GST refers to an easy and simplified scheme for small taxpayers to make compliance easier and reduce their tax liabilities. It is an optional and alternative method of tax levy under the GST, which allows small taxpayers to pay tax at a prescribed percentage of their turnover every quarter, instead of monthly. It is applicable to any taxpayer whose aggregate turnover in a financial year does not exceed INR 1.5 crore.

Eligibility for Composition Scheme Under GST

Before knowing how to apply for the GST composition scheme, let's understand who is eligible. The eligibility criteria for the Composition Scheme are:
  1. The business must not be involved in interstate supply.
  2. The annual turnover of the business must not exceed INR 1.5 crore.
  3. The business must not be a casual taxable person or a non-resident taxable person.
  4. The goods that are supplied by the business must not be through an e-commerce operator who is required to collect tax at source.

Steps to Apply for GST Composition Scheme

  1. GST Login: Log into the official GST portal with your login credentials. Your GSTIN/User id and password are needed for login.
  2. Opt for Composition Scheme: Navigate through the 'Services' tab, click on 'Registration' and then 'Application to Opt for the Composition Scheme'.
  3. Filing Form GST CMP-02: Enter your credentials, Fill up the details as required, and then verify and submit Form GST CMP-02 to apply for the scheme.
  4. Filing Form GST ITC-03: After successfully filing form CMP-02, the applicant must file form ITC-03 within 60 days from the commencement of the relevant financial year. This is done to reverse the input tax credit.
  5. Acknowledgement: The system will generate an acknowledgement form, Form GST REG-21, once the application, form CMP-02 and the other required documents are verified and accepted by the GST officer reviewing your application.
  6. Digital Signature Certificate (DSC) or EVC: After the completion of submitting, you need to sign the application using DSC or EVC.

Key Takeaways

The Composition Scheme is an excellent option for small businesses as it significantly relaxes the norms of compliance and reduces the tax liability. Thus the whole process becomes less time-taking and cost-effective. Also, note that once you have opted for the GST composition scheme, there will be no requirement to maintain detailed records.

However, it's also important to note that businesses operating under the composition scheme cannot issue tax invoices and cannot claim input tax credit (ITC). Hence, businesses that frequently make interstate purchases or end-consumers might not find the scheme beneficial. Therefore, while the transparency and simplicity of the scheme make it desirable, businesses must weigh out the advantages and disadvantages before applying.

With this understanding of the composition scheme under GST and its application process, small traders, manufacturers, and service providers can benefit greatly. It is no surprise that this scheme is seeing a growing number of applicants.

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