Composition Scheme Impacts On GSTR 9 Annual Return Filing

What is a GST composition scheme?

Small businesses can simplify their taxes with the GST composition scheme. This plan offers two main benefits over standard GST filing: reduced paperwork and compliance and lower tax burdens. While regular taxpayers must file three monthly returns (GSTR-1, GSTR-2, and GSTR-3) plus an annual return (GSTR-9), those using the composition scheme only need to file one quarterly return (GSTR-4A) and one annual return (GSTR-9A).

---

Eligibility of composition scheme under GST?

The Composition Scheme, under the GST regime, is available to certain businesses with an annual turnover of up to INR 1.5 crore. This limit was increased from the initial INR 1 crore by the CBIC. Aggregate turnover, calculated by combining the turnover of all businesses under the same PAN, determines eligibility.

Eligible businesses include manufacturers, retailers, and restaurants that do not serve alcohol. However, the following are not eligible:

• Manufacturers of ice cream, tobacco, and pan masala
• Businesses making inter-state supplies
• Casual taxpayers
• Non-resident taxpayers
• Businesses supplying goods through e-commerce operators

---

Impact of Composition Scheme on GSTR 9

The Composition Scheme under GST is designed to simplify tax compliance for small businesses. This simplification has a direct impact on how these businesses file their annual return, GSTR 9. Here's a detailed breakdown of the key impacts:

Simplified Reporting:

• Reduced reporting requirements: Unlike regular taxpayers who need to provide detailed information about their sales, purchases, and input tax credits, Composition Scheme taxpayers have significantly fewer reporting requirements. This is because their tax liability is calculated as a fixed percentage of their turnover rather than on individual transactions.
• Limited details in GSTR 9: Consequently, the GSTR 9 form for Composition taxpayers (GSTR 9A) is much simpler. It requires less detailed information, focusing primarily on the aggregate turnover and the total tax paid. This reduces the complexity and time required for filing the annual return.

No Input Tax Credit (ITC) Claim:

• No ITC eligibility: A core feature of the Composition Scheme is that taxpayers opting for it cannot claim Input Tax Credit (ITC) on their purchases. This means they cannot reduce their output tax liability by the amount of tax they paid on their inputs.
• Impact on GSTR 9: This has a significant impact on the ITC-related sections of GSTR 9. Since Composition taxpayers cannot claim ITC, these sections become irrelevant to them. They don't need to provide details of inward supplies, or ITC availed, further simplifying the form.

Fixed Tax Liability:

• Reporting fixed tax: Composition Scheme taxpayers pay tax at a fixed rate on their turnover. This rate varies depending on the type of business. They are required to report this fixed tax liability in their GSTR 9.
• Impact on GSTR 9: The GSTR 9 for Composition taxpayers will have specific sections for reporting the total turnover and the corresponding tax payable at the applicable fixed rate. The calculation is straightforward, involving multiplying the turnover by the fixed tax rate. This simplifies the tax liability calculation and reporting compared to regular taxpayers who need to calculate tax on individual transactions and account for ITC.

Turnover Reporting:

• Specific turnover reporting: While the overall reporting is simplified, accurately reporting the turnover is crucial for Composition taxpayers. They need to report their total turnover for the financial year in GSTR 9.
• Impact on GSTR 9: The GSTR 9 form will have specific sections dedicated to capturing the turnover details of Composition taxpayers. This ensures that the tax liability is correctly calculated based on the reported turnover.

Reconciliation with GSTR 4:

• GSTR 4 and GSTR 9: Composition taxpayers file quarterly returns in GSTR 4. The GSTR 9 serves as an annual summary of these quarterly filings.
• Importance of reconciliation: It is essential to reconcile the information reported in GSTR 4 with the information reported in GSTR 9. This ensures consistency and accuracy in the reported data. Any discrepancies between the quarterly returns and the annual returns need to be identified and rectified. This reconciliation helps in avoiding potential issues with tax authorities.

---