The GST composition scheme is a scheme provided under the GST, which simplifies the compliance burden for small taxpayers. It aims to provide relief to small taxpayers by offering lower compliance requirements and payment of tax at a fixed rate. Registering under this scheme can be a very simple process with the consultancy of an E-Filing expert.
In this article, we aim to provide an overview of the GST Composition Scheme, its provisions, and eligibility criteria under Section 10 of the GST Act.
What are the provisions and benefits of the GST Composition Scheme?
The below are provisions and benefits of GST Composition Scheme:
GST Liability
Under the GST Composition Scheme, taxpayers are required to pay a fixed percentage of their turnover as GST instead of paying tax at the normal rates. The GST Composition Scheme rates vary based on the type of business – for example, for traders, it’s 1%, for manufacturers and restaurants, it’s 2%, and for service providers, it’s 5%.
Input Tax Credit
Taxpayers enrolled in the GST Composition Scheme are not eligible for input tax credit (ITC) on purchases made for their business. In addition, they cannot collect any tax from their customers or issue a tax invoice. Since they cannot collect tax, the taxpayers must bear the tax liability out of their profits.
Turnover Limit
The turnover limit for eligibility for the GST Composition Scheme has been raised from Rs. 75 lakhs to Rs. 1.5 crores and in case of North-Eastern states and Himachal Pradesh, the limit is now Rs 75 lakhs The threshold limit excludes businesses that are involved in inter-state sales, the supply of goods and services through an e-commerce platform, and the manufacturing of ice cream, pan masala, tobacco products.
Benefits of the GST Composition Scheme:
Reduced Compliance Burden
Small businesses and traders carrying out business activities in India are required to comply with numerous laws and regulations governing their operations, including tax laws. The GST Composition Scheme aims to reduce the compliance burden of small businesses by requiring them to file quarterly returns instead of monthly returns. The taxpayers under the scheme are also not required to maintain detailed records of their inward and outward supplies of goods and services.
Lower Tax Liability
As mentioned earlier, the GST Composition Scheme offers a lower tax liability for small taxpayers. This scheme is useful for small businesses that are unable to avail of input tax credit and have a limited tax liability.
Increased Cash Flow
The GST Composition Scheme also helps small taxpayers by increasing their cash flow through GST returns. As taxpayers under the scheme pay a fixed percentage of their turnover as GST, they do not have to worry about fluctuating tax liabilities.
Whаt is the eligibility criteriа for the GST Composition Scheme?
Aggregate Turnover Limit
The GST Composition Scheme is available to taxpayers whose aggregate turnover in the previous financial year does not exceed Rs. 1.5 crores and Rs. 75 lakhs in case of special states. The threshold limit for the scheme was previously Rs. 75 lakhs, which was increased to Rs. 1.5 crores in the 32nd GST council meeting. The composition scheme cannot be opted for by manufacturers of ice cream, pan masala, and tobacco products.
It is important to note that aggregate turnover includes the value of all supplies, exempt supplies, exports, and inter-state supplies. Therefore, businesses with a turnover of more than Rs. 1.5 crores in the previous financial year are not eligible to opt for the composition scheme.
Type of Business
The taxpayer can opt for the composition scheme only if they are not involved in inter-state supplies or any business activities related to e-commerce. This means that taxpayers engaged in the supply of goods and services in multiple states or through online platforms cannot opt for the scheme.
Taxpayers engaged in the supply of services, other than restaurant services and those who are engaged in the manufacturing of ice cream, pan masala, and tobacco products, are not eligible to opt for the composition scheme.
Tax Payment
Under the GST Composition Scheme, taxpayers are required to pay tax at a fixed rate that is lower than the normal GST rate. The GST Composition Scheme rates vary based on the type of transaction – for example, for traders it’s 1%, for manufacturers apart from those not eligible for composition scheme is 2% and restaurants not serving alcohol, 5%, and for service providers, it’s 6%.
It is important to note that taxpayers under the scheme are not eligible for input tax credit (ITC) and they themselves will not be allowed to collect tax from their customers. Additionally, taxpayers under the scheme are not required to maintain detailed records of their inward and outward supply of goods and services.
The GST Composition Scheme is a beneficial scheme for small taxpayers who are looking to simplify their compliance and reduce their tax burden. It provides many benefits and advantages to the people who register under this scheme. To help with the GST filing process, contact an E-Filing expert today!