12 Things you must know about GST Composition Scheme
India had made one of the historical moves by adopting a uniform system for indirect taxes. 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 discuss in detail about the GST composition scheme. GST Composition Scheme is a special benefit for those startups/businesses who find difficulty in operations due to high taxation and rigid compliance.
1. What is GST Composition Scheme?
A special composition scheme has been made under GST for small businesses and startups to resolve the challenges related to GST return filing and high taxation. Getting GST Registration under 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.
2. Who can get GST registration under Composition Scheme?
Those Businesses/Startups that deal in goods and services having a turnover below INR 1.5 Crore can get GST registration under Composition Scheme.
Special category states can apply for GST composition scheme only if turnover is less than INR 75 lakhs. The special category states include:
1. Arunachal Pradesh,
8. Tripura, and
9. Himachal Pradesh
3. Who has been excluded from GST Composition Scheme?
GST Composition Scheme has been made mainly to benefit small businesses. Taxable persons who have been excluded from the benefits of this scheme are as follows:-
- The casual taxable person or a non-resident taxable person;
- Businesses whose aggregate turnover in the preceding financial year crossed Rs. 50/75 lakhs;
- The business making inter-State sells goods;
- The suppliers making any supply of goods through an electronic commerce operator like Amazon, Flipkart, Snapdeal, etc
- 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 for those opting for the composition scheme
- If the business falls into different segments then it must register collectively for composition scheme.
4. 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 are very low, i.e. 1% & 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)
Besides, there's a separate composition scheme for service providers and dealers of mixed supplies.
5. What is the composition scheme for service providers?
The GST Council in its 32nd meeting had introduced a new composition scheme for service providers as well as mixed supplies of goods & services. Under this composition scheme,
- Threshold limit for GST Registration shall be â‚¹50 lakhs.
- The GST tariff rate shall be 6%, i.e. 3% CGST + 3% SGST
- The suppliers under this scheme would require to file only annual GST return GSTR-9A and no need to file GSTR-4.
6. 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.
Note: If a composition taxpayer having GST registration in Multiple states, he will have to pay composition tax in all states.
7. Whether composition taxpayer can supply goods outside his 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.
8. What are the merits of the GST composition scheme?
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 compliance.
Ventures registered under this scheme have to pay lower taxes than others. So it involves less working capital. Hence, brings liquidity.
9. What are the demerits of the GST composition scheme?
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.
Cannot 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 only a bill of supply in lieu of a tax invoice.
10. What are the Criteria 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. The 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.
11. 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
12. What is the Difference between Regular 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.
If you need any guidance related to GST registration, or GST return filing procedure, feel free to contact our business advisor at 8881-069-069.
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