GST compliance is a must for every taxpayer who is registered under GST. But while bigger businesses have the resources to manage these compliance requirements quite easily, smaller businesses often face trouble due to the demanding nature of these requirements. To overcome such problems for smaller businesses, the government introduced the GST Composition Scheme.
The Composition Scheme is a simplified tax scheme introduced for small taxpayers. It aims to reduce the compliance burden on small businesses by allowing them to pay tax at a lower rate and file their returns on a quarterly basis instead of monthly. Businesses with annual revenue of up to Rs. 1.5 crore are eligible for the scheme, but there are some limitations on interstate sales, input tax credits, and the production of tax invoices. The GST Composition Scheme has provided relief to small businesses and has helped to increase compliance under the GST regime.
In this article, we will cover the Regular Scheme and Composition Scheme
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This is the default scheme for all registered taxpayers. If an eligible business does not explicitly opt for the composition scheme, they will be taxed as per the regular scheme.
GST Registration becomes mandatory when a business turns over more than ₹20 lakhs (in the case of services) and ₹40 lakhs (in the case of products). However, some states have exceptions put in place, whereby GST Registration is not mandatory if turnover did not exceed ₹75 lakhs in the previous financial year.
These states are as follows:
Under the regular scheme, businesses are required to file monthly returns and pay tax on their output supplies. They are also eligible to claim input tax credit on their input supplies. The Regular Scheme also allows for inter-state sales and purchases, and businesses can issue tax invoices for their transactions.
For small taxpayers, India’s Goods and Services Tax (GST) system established the Composition Scheme, a streamlined tax structure. Small enterprises with taxable items under Rs. 1.5 crores are eligible for the composition plan, under which the seller is required to pay GST at a rate of 1% for dealers, 2% for manufacturers, 5% for restaurants, and 6% for service providers. The scheme restricts inter-state sales, and businesses cannot claim an input tax credit on their purchases. Additionally, businesses under the Composition Scheme cannot issue tax invoices and instead issue bills of supply. This scheme aims to reduce the compliance burden on small businesses and promote ease of doing business. However, businesses must carefully evaluate their eligibility and the scheme’s benefits before opting for it.
The Composition Scheme under GST has the following objectives:
A taxpayer whose turnover is below Rs. 1.5 Crores can opt for a composition scheme. The cap has been raised to Rs. 75 Lakh for Himachal Pradesh and the northeastern states. As per the CGST (Amendment) Act, a composition dealer may also offer services up to Rs. 5 lakh or 10% of turnover, whichever is higher. This amendment is applicable from 1st Feb 2019. Further, in its 32nd meeting, the GST council proposed increasing this limit for service providers. Turnover for all businesses registered with the same PAN should be considered to calculate turnover.
Manufacturers of ice cream, pan masala or tobacco can apply for the Composition scheme. A person making inter-state supplies and a casual taxable person or a non-resident taxable person is eligible to opt for the Composition scheme.
The following conditions must be satisfied to opt for the composition scheme.
Depending on a person’s business, different composition scheme limits apply under the GST.
Additionally, Rs. 1.5 Crore cap is further limited to Rs. 75 Lakh in the special category states. Suppose the turnover exceeds the specified composition scheme limit in a financial year. In this case, you must convert to a common GST payment mechanism to comply with GST Composition Scheme rules.
Switching from a regular scheme to a Composition scheme will allow credit of taxes held in stocks as input or credit of a value-added tax in respect of input and inputs contained in semi-finished or finished goods on the appointed date subjected to the following conditions:
The following table shows the GST rates as applicable to dealers who opt for the composition scheme:
|Type Of Business||CGST||SGST||Total|
|Manufacturers and Traders (Goods)||0.5%||0.5%||1.0%|
|Restaurants Not Serving Alcohol||2.5%||2.5%||5.0%|
|Other Service Provides||3.0%||3.0%||6.0%|
The Composition Scheme under GST offers several advantages for small businesses, including:
While the Composition Scheme under GST offers several advantages for small businesses, there are also a few disadvantages to consider, including:
GST subsumed several indirect taxes, making it easier for companies to comply. As this act is still relatively new, many people are still not aware of its provisions. The GST council introduced the Composition scheme to make compliance easier for small businesses.