Introduction

The Goods and Services Tax composition scheme was introduced to reduce the compliance burden on small businesses and allow them to focus on operations rather than paperwork. This scheme is particularly beneficial to small-scale suppliers, manufacturers, and service providers whose annual turnover does not exceed a specified threshold. By offering simplified tax rates and a lesser return filing requirement, the scheme helps reduce administrative costs and facilitates better compliance. Businesses that opt into the scheme are required to pay tax at a fixed rate based on their turnover and are restricted from collecting tax from their customers. While the composition scheme simplifies many aspects of GST, it also introduces its own set of rules and procedures, especially concerning return filing. Understanding the structure and process of composition scheme GST return filing is essential for maintaining compliance, avoiding penalties, and ensuring that the benefits of the scheme are fully utilized.

Eligibility criteria for the scheme

The composition scheme is available to taxpayers with aggregate annual turnover up to one crore fifty lakh rupees in most states and seventy-five lakh rupees in special category states. Manufacturers, traders, and restaurants (not serving alcohol) are eligible. Service providers were initially excluded but are now allowed under a special provision with a lower turnover cap. Taxpayers must opt into the scheme at the beginning of a financial year.

Features of the scheme

Under the scheme, the taxpayer pays tax at a flat rate on turnover. For manufacturers and traders, the rate is one percent, while for restaurants it is five percent. Service providers pay at a rate of six percent under the notified extension. Taxpayers cannot issue tax invoices or collect tax separately from customers, and they are not allowed to claim input tax credit.

Return filing frequency

Taxpayers under the composition scheme are required to file returns less frequently compared to regular taxpayers. They file Form CMP-08 quarterly, which is a self-assessed statement-cum-payment form, and Form GSTR-4 annually. This structure reduces the number of filings from twenty-four to five per year, making it easier to manage.

Quarterly return in CMP-08

Form CMP-08 must be filed by the eighteenth of the month following each quarter. It contains details of outward supplies, inward supplies, and tax paid. Tax is paid based on a self-assessment, and the form is submitted online using the GST portal. Timely filing is necessary to avoid interest on delayed payment.

Annual return in GSTR-4

In addition to quarterly returns, composition taxpayers are required to file an annual return in Form GSTR-4 by the thirtieth of April following the end of the financial year. This return summarizes the turnover, inward supplies, tax liability, and payments made during the year. It replaces the earlier quarterly GSTR-4 that was discontinued.

Calculation of tax liability

The taxpayer must calculate tax based on the total turnover during the period. Since input tax credit is not available, the entire tax paid is an expense. The taxpayer must ensure that correct turnover is reported in each return, including interest and penalty if applicable. Under-reporting may attract departmental scrutiny.

Reconciliation with books of accounts

Although simplified, the scheme still requires proper bookkeeping. Reconciliation of turnover reported in CMP-08 and GSTR-4 with the books of accounts ensures that there are no discrepancies. This also supports audit preparedness and reduces the risk of notices or penalties.

Switching between regular and composition schemes

A taxpayer may opt out of the composition scheme and switch to regular registration if their turnover exceeds the threshold or if they wish to claim input credit. The switch must be reported to the department, and applicable returns for the new category must be filed accordingly. Conversely, eligible taxpayers may opt back into the scheme at the beginning of a financial year.

Penalties for late filing

Late filing of CMP-08 or GSTR-4 attracts penalties under the GST Act. A late fee of two hundred rupees per day is applicable, capped at five thousand rupees. Additionally, interest at eighteen percent per annum is charged on delayed tax payments. Timely filing is essential to maintain the benefits of the scheme.

Advantages and limitations

The composition scheme provides significant relief to small businesses by reducing tax rates, filing frequency, and administrative workload. However, the inability to claim input tax credit and restrictions on interstate supply or e-commerce participation are notable drawbacks. Businesses must weigh the benefits and limitations before opting for the scheme.

Conclusion

The GST composition scheme and its associated return filing processes offer a structured yet simplified approach for small businesses to comply with tax regulations. While the return filing is less frequent and more manageable, accuracy and timeliness remain essential. Filing CMP-08 and GSTR-4 in accordance with GST rules not only helps avoid penalties but also builds a strong foundation for sustained compliance. Businesses must stay informed of eligibility norms, maintain accurate records, and consult professionals when transitioning between schemes. The composition scheme stands as a valuable option for those seeking to minimize compliance efforts while remaining within the framework of India’s tax system.

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