GST Returns for Composition Dealers

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GSTR-4 is a document that needs to be filed once every 3 months by registered tax payers who have signed up for the composition scheme (they are known as composition vendors). The GSTR-4 contains the total value of the sales and supplies made, the tax paid at compounding rate, and invoice-level details of purchases the composition vendor made from other registered tax payers during the tax period. When you make purchases from registered vendors, the information from their sales returns (GSTR-1) will be available in the GSTN portal as GSTR-4A) for you to use in your GSTR-4. Before you file your return, you can check this information, make changes if necessary, and add any details that were not auto-populated.

When to file GSTR-4

This return can be filed as soon as the relevant quarter ends. The last day to file the GSTR-4 is the 18th of the month following the end of the quarter. For example, if you are filing the GSTR-4 for the July-September quarter, you have to file it before the 24th of December.

Prerequisites for filing GSTR-4

  • You have to be a registered tax payer and a composition vendor under the GST.
  • The aggregate turnover of your business must be less than Rs. 75 lakh per annum.
  • You should be involved in intrastate trade only.
  • You need to keep track of all purchases and imports you have made during this quarter.

Related FAQ’s

Businesses with annual turnover up to Rs 1.5 crore can opt for composition scheme. Turnover of all businesses with the same PAN has to be added up to calculate turnover for the purpose of the composition scheme.

Only Manufacturers of goods, Dealers, and Restaurants (not serving alcohol) can opt for the composition scheme under Section 10. However, service providers can opt into a similar scheme for composition dealers notified by the CGST (Rate) notification no. 2/2019 dated 7th March 2019 where the total turnover limit is Rs.50 lakh.

Please use the chart below to understand the tax rate on turnover in the state as follows:

Composition scheme : Applicable GST Rate

Type of Business CGST SGST Total
Manufacturers and Traders (Goods) 0.5% 0.5% 1%
Restaurants not serving Alcohol 2.5% 2.5% 5%
Service Providers 3% 3% 6%

A composition dealer has to pay tax under reverse charge mechanism wherever applicable. The rate applicable to the supplies is the rate at which GST has to be paid. This means that rate under composition scheme should not be used for reverse charge purposes. Also, no input tax credit is available for tax paid under reverse charge for a composition dealer.

Tax at normal rates has to be paid on purchases from an unregistered dealer only for the months of July and August 2017. From September 2017 onwards there is no need to pay tax on these purchases, except if the taxpayer is into real estate. The builders are required to pay tax on a reverse charge basis at 18% for any shortfall beyond 80% in the purchases from GST registered vendors. No ITC is available on tax paid under reverse charge.

IGST should not be paid by a composition dealer. The dealer who is required to pay tax under reverse charge, import of service or purchase from an unregistered dealer has to pay only CGST and SGST.

A composition dealer is required to pay tax at a specific rate on total sales. Also, the dealer has to pay tax under reverse charge on specified purchases, purchase from unregistered dealers and import of services.

This means that Total GST payable = Tax on supplies (net of advance and goods returned) + tax on B2B transactions where reverse charge is applicable + tax on B2B purchases from unregistered suppliers, if applicable + Tax on Import of services.

The rate of tax on transactions under reverse charge, purchase from an unregistered dealer and import of services will be at normal rates, i.e. the rates applicable to the supplies. Rates under the composition scheme are applicable only to sales of a composition dealer.

No, a dealer registered under composition scheme is not required to maintain detailed records as required by a normal taxpayer.

No, a composition dealer is not allowed to avail input tax credit of GST on purchases.

A composition dealer has to issue a Bill of Supply. They cannot issue a tax invoice. This is because the tax has to be paid by the dealer out of pocket. A composition dealer is not allowed to recover the GST from the customers.

The taxable person is required to pay tax on quarterly basis in a challan-cum-statement from FY 2019-20, i.e CMP-08 instead of furnishing return, i.e. GSTR-4.

No, a composition dealer is not allowed to collect composition tax from the buyer.

The composition scheme is available only for dealers doing intra-state supplies. If a dealer is involved in inter-state supplies, then they have to opt out of the scheme.

Taxpayers registered under composition scheme under VAT were allowed to take credit for inputs in stock, or in semi-finished goods or in finished goods held on the day before the day of opting out of composition scheme.

Following are the conditions which must be addressed by the taxpayer to avail credit on input at the time of transition from composition scheme to the normal scheme:

  • Inputs or goods will be used for making taxable supplies.
  • The CENVAT Credit was eligible to be claimed in the previous regime. However, one couldn’t claim it under the composition scheme.
  • ITC is eligible for availing under the GST regime.
  • The taxpayer has bills of input tax paid on such goods.
  • Invoices should not be older than one year from 1st July 2017 (i.e. not dated before 1st July 2016)

When switching from normal scheme to composition scheme, the taxpayer shall be liable to pay an amount equal to the credit of input tax in respect of inputs held in stock on the day immediately preceding the date of such switchover. The balance of input tax credit after payment of such amount, if any, lying in the credit ledger shall lapse.

Yes, this is possible. You can opt to switch between the composition scheme and the normal scheme based on your turnover. However, you will have to keep in mind that this will affect the way you issue invoices and file your returns. The declaration of change can be submitted on the GST Portal.

Composition scheme is considered to be opted for all businesses that are associated with a PAN.

Yes. Composition dealers cannot charge GST on their sales in the bill of supply. So the end consumer pays less money than usual.

No. Before the beginning of every financial year, a registered taxpayer is required to provide a declaration on the GST Portal. This cannot be done anytime during the year. Form CMP-02 must be used to opt into the composition scheme (both supplier of goods and service provider).

When a dealer opts out of the composition scheme all the normal rules are applicable from the day of opting out. For example, a composition dealer opts out of the composition scheme on 15th October 2020. This means that the dealer will have to file two CMP-08 for the quarters of July – September, and October (15 days). The dealer will also have to file GSTR-1 and GSTR-3B for the period of October 2020 (sales from 15th October until end of the month).