GST Composition Scheme | Eligibility | Benefits & Process | Who can opt ?
India made one of the historical moves by adopting a single tax system for indirect taxes in the country. The announcement for the adoption of Goods and Services (GST) tax was made in the midnight of 30th June 2017 and came into effect from 1st July 2017. In this article, we will deal with GST composition scheme. GST has made all the taxes simpler. GST Composition Scheme is a special benefit for those startups/businesses who find difficulty in operations. Due to high taxes, these small businesses are not able to work smoothly, hence, soon die.
What is GST Composition Scheme?
The main aim of Tax Administration is to recover the taxes on time, the filing of returns, maintenance of records etc. Earlier it was a great challenge for small businesses to follow these steps but a special composition scheme has been made for small businesses and startups under GST to resolve these kinds of challenges. Registering for GST Compliance Scheme is optional. This scheme benefits small and medium enterprises.
The objective of composition scheme is to bring simplicity and to reduce the compliance cost for the small taxpayers. Moreover, it is optional and the eligible person opting to pay tax under this scheme can pay tax at a prescribed percentage of his turnover every quarter, instead of paying tax at a normal rate.
Who can register under GST Composition Scheme?
Those Businesses/Startups which deal in goods and restaurant sector and have a turnover less than INR 1.50 Crore can register for GST Composition Scheme. Service providers can not register under composition scheme.
Special category states can apply for GST composition scheme only if turnover is less than 75 lakhs. The special category states include:-
1. Arunachal Pradesh,
8. Tripura, and
9. Himachal Pradesh
Who has been excluded from GST Composition Scheme?
GST Composition Scheme is mainly to benefit small businesses. Taxable persons who have been excluded from the benefits of this scheme are as follows:-
a) casual taxable person or a non-resident taxable person;
b) Businesses whose aggregate turnover in the preceding financial year crossed Rs. 50/75 lakhs;
c) Service industry businesses (other than restaurant service);
d) business making inter-State sells goods;
g) suppliers making any supply of goods through an electronic commerce operator like Amazon, Flipkart, Snapdeal, etc
h) a manufacturer of Ice cream, other edible ice, Pan Masala, Tobacco and manufactured tobacco substitutes.
There is no restriction on procuring goods from interstate suppliers by persons opting for the composition scheme
If the business falls into different segments then it must register collectively for the scheme.
What are the rates under GST composition scheme?
GST rates have been classified into 6 categories ranging from 0 % to 28%, depending upon the nature of goods and services. The rate of interest under GST Composition Scheme ranges from 1% to 5%.
2% of turnover ( 1% CGST plus 1% SGST)
5% of turnover ( 2.5% CGST plus 2.5% SGST)
Traders. Retailers, Wholesaler, etc
1% of turnover ( 0.5% CGST plus 0.5% SGST)
When will a person opt for composition levy pay tax?
A person opting for composition levy will have to pay tax on a quarterly basis before 18th of the month succeeding the quarter during which the supplies were made.
In case a person has registration in multiple states? Can he opt for payment of tax under composition levy only in one state and not in other states?
The option to pay tax under composition scheme will have to be exercised for all States.
Can supplier of Services opt for composition levy?
No, the only exception being a supplier of restaurant services.
Can a person paying tax under composition scheme make supplies of goods outside the State?
No, business who opted for composition scheme cannot sell goods Inter-State or to SEZ. Thus, for making supplies to outside the state, a business needs to take registration as a regular taxpayer.
What are the merits and demerits of the scheme?
Every scheme has some merits and demerits depending on the circumstances.
Some of the merits of the scheme are as follows:-
Reduction in liability to pay tax
The tax rates under composition scheme range from 1% to 3% which is very less than general GST rates which range from 0% to 28%.
One of the major benefits of GST Compliance scheme is that small businesses/startups registered under this scheme has to submit less number of documents. Businesses have to file only quarterly rather thrice in a month.
Ease of doing business
This scheme has made the business easy for small businesses/startups as it has reduced the liability to pay tax and has limited the compliance.
Ventures registered under this scheme have to pay lower taxes than others. So it involves less working capital. Hence, brings liquidity.
Limitations of the GST Compliance Scheme are as follows:-
Limited to Inter-state business
It is applicable only if the firm is operating within the boundaries of its state.
Tax from your pocket
The taxpayer under this scheme has to pay taxes from his pocket and is not allowed to charge from his buyer.
Provision of penalty
If any business registered under this scheme is found faulty for registering for the scheme, then it will have to pay all the taxes levied on it along with 100% of the levied amount as the penalty.
Can Not avail input tax credit
Businesses who opted for GST composition scheme cannot avail the input credit of GST paid on goods and services purchased.
Can Not issue Tax Invoice
In such a case, a business can issue a bill of supply in lieu of tax invoice.
Eligibility for business to register for GST Compliance Scheme
One can take benefit of GST Compliance Scheme by registering into this scheme. There are certain eligibility criteria for businesses to register for this scheme. These are as follows:-
- The firm/business must not work as e-commerce.
- Beneficiary dealing in supply of goods or restaurant can apply.
- Interstate supply of goods must be absent. Business should only perform its business within its registered state.
- Turnover must not be more than 1 Crore (in special states must not be more than 75 lakhs).
- Business working in the service sector has been kept away from this scheme.
How to Register for GST Composition Scheme
- Upload the Required Documents & Information to our web portal
- Choose Package and Pay online with different payments modes available
- On placing order, your application is assigned to one of our dedicated professional
- Our team will file your Goods and Service Tax Registration Application online
- Provide you ARN (Application Reference Number) over the email
- Track & provide you GST Certificate obtained from government web-portal
Rate of taxes under GST Composition Scheme
- For manufacturers who are eligible for GST, Composition Scheme has to pay 2%.
- For restaurants, the rate of GST is 5%.
- For other suppliers, the rate of GST under this scheme is 1%.
Difference between Normal Dealer and Composition Dealer
- GST Payable for Normal Dealer is calculated by subtracting Output GST with input GST whereas GST Payable for Composition Dealer is calculated only by Output GST.
- A normal dealer has to file three returns in a month whereas Composition dealer has to file return quarterly.
- Normal dealers can work inter-state as well as intra-state whereas Composition Dealer has to work intra-state only.
- The rate of tax for Normal dealers is very high in comparison to Composition dealers.
- No maximum limit of turnover for Normal Dealers but for Composition dealer’s maximum limit is 1 Crore.
GST Composition Scheme is going to be boon for middle and small businesses as paying taxes will become easy for them. It will also help Government to motivate those small businesses who have not registered as they find if they get registered they will be liable to pay tax.