The introduction of GST laws transformed the indirect tax system in India by unifying a plethora of state and central taxes into one consolidated unit. But many small businesses did not have the expertise, or the capacity to comply with the GST regulations. But small businesses are the backbone of the Indian economy. Recognizing this fact, the Government introduced the GST Composition Scheme with easier GST compliance norms to help micro, small, and medium industries in India.
What is the Composition Scheme?
In the Composition scheme, any business registered in India with an aggregate sales turnover of less than 1.5 crore in the preceding financial year can pay their GST liability at prescribed rates. For businesses located in the northeastern states or Himachal Pradesh, the turnover limit is 75 lakhs. In this scheme, the businesses can file the returns annually in a simpler filing form.
All businesses registered under the Composition scheme must file GST-4 returns every year. GSTR-4 is a consolidated summary form containing details of inward and outward supplies, taxes paid on inward supplies, the tax liability arising from the supplies and the tax paid during the tax period. It is a mandatory return and must be filed by 30th April of the following financial year. For example, the due date for filing GSTR-4 for the financial year 2022-23 is 30th April 2023.
Eligibility Criteria for Filing GSTR-4
Businesses registered for the Composition Scheme in GST must file GSTR-4 return quarterly. The eligibility criteria for filing GSTR-4 are:
- Small businesses with a turnover of up to 1.5 crore are eligible to opt for the Composition scheme in which the tax rate is lower and the filing is simple. So, the compliance burden is also less.
- Only businesses who have opted for this scheme are eligible to file GSTR-4 annually. The GSTR-4 return must be filed annually by the 30th of April of the following
- All the businesses enrolled under the same PAN are considered for calculating the turnover.
- The phrase ‘composition taxable person’ should be mentioned on every bill that the business issues, and it should also be mentioned on all report boards at the business address.
- Goods suppliers can provide services only up to a maximum of 5 lakh rupees.
- Businesses which are involved in inter-state trading of goods are also eligible for the composite scheme.
- Input tax credit claim and collection of composition tax is not allowed in this scheme for the dealers.
Persons not Eligible for the Composition Scheme
- Non-resident taxable or legal persons
- Service providers
- Non-taxable goods suppliers
- Suppliers other than those related to restaurant businesses.
- GST exempted goods suppliers.
- Businesses supplying goods employing e-commerce operators.
- Manufacturers of ice-cream, tobacco and pan masala manufacturers.
- Interstate goods suppliers
Related Read: GSTR-4 Meaning & Applicability
Consequences of Ineligible Filing, Late Filing and Non-Filing
Businesses that are ineligible for filing under the composition scheme must pay a penalty equal to the tax amount due.
Penalty for Late Filing of GSTR-4
Penalty for late filing of GSTR-4 is Rs.50/-per day with a maximum of Rs.2000/- for normal filing and Rs.500/- for nil return filing.
Penalties for not Filing GSTR-4
The penalty for not filing GSTR-4 on time is Rs.100/-per day of delay (Rs. 50 as SGST and Rs. 50 as CGST), with a maximum of Rs.2000/- (Rs. 1000 as SGST and Rs. 1000 as CGST, and maximum is Rs.500/-for Nil returns. In addition to the late fee, a penalty for non-filing or late filing is imposed, which is 10% of the tax amount due, subject to a minimum of Rs.1000/-. Hence it is important for taxpayers to file their GSTR-4 on time to avoid late fees and penalties. Not furnishing the returns for three consecutive tax periods may result in cancellation of registration for the business.
Essential Requirements to File GSTR-4
The following are the prerequisites to file GSTR-4 in the GST portal.
- Valid GSTIN: To file GSTR-4 on the GST portal, the business needs to have a valid GSTIN.
- Opted for the Composition Scheme: The business should have opted for the Composition Scheme
- Annual Filing Frequency: The GSTR-4 must be filed
- Validity of Composite Scheme: On the date of filing the business should be duly registered under the Composite Scheme
- Filed Form CMP-08– The taxpayers must have filed the relevant form CMP-08 statements for all the quarters of the financial year.
- Tax Liability: The tax payable, tax amount paid, interest payable, interest paid, late fees payable and paid get auto-populated from Form CMP-08.
- Details of Inward and Outward Supplies: The business should upload accurate details of the inward and outward supplies made during the year as these details are auto-populated from Form CMP-08 in GSTR-4 and have to be reconciled regularly. GSTR-4 once filed cannot be rectified.
- Not made B2B transactions: If the business has made any B2B transactions, they cannot file the GSTR-4
- Exports of Supplies through E-Commerce Operator: If the business has made any exports or supplies through an e-commerce operator, they cannot file the GSTR-4
Businesses that fulfill the above conditions can login into the GST portal and file the GSTR-4 online.
Important Points to Note before Filing GSTR-4
- The taxpayer must have registered and opted for the composition scheme at least one day during the financial year for which the return is filed.
- Taxpayers must have filed all the relevant CMP-08 statements for all the quarters of the financial year.
- If the GSTR-4 is not filed by the prescribed due date, late fee and penalties must be paid.
- Third-party apps and software can be used to file GSTR-4
- There is no edit or revise option of the GSTR-4 after it is filed in the GST portal. The rectifications must be done in the subsequent year’s return.
- Can GSTR-4 be revised?
Answer: GSTR-4 cannot be revised after it is filed.
- What are the other returns that Composition Scheme businesses must file?
Answer: Businesses registered under the composition scheme must pay tax quarterly in a challan-cum-statement Form CMP-08 and the annual return GSTR-4 every financial year.
The introduction of the Composition Scheme helped small businesses to implement GST smoothly because of the easier compliance norms and lesser tax rates prescribed in the scheme. Filing GSTR-4 by such businesses registered under the Composition Scheme is mandatory. GSTR-4 is a summary return consisting of all inward and outward supplies, taxes paid on inward supplies, the tax liability, and the tax paid. It must be filed annually and is much simpler to file.
Businesses should be well versed with the due dates and rates and ensure accurate details are uploaded in the return as it cannot be modified once filed. Penalties are imposed for late filing. Businesses that are ineligible to avail the scheme but have registered in the scheme and filed the returns are also penalized. So, taxpayers should have a good knowledge of the eligibility criteria for registration under the Composition Scheme and filing GSTR-4.