Introduction:

The Composition Scheme under GST, introduced to lighten the tax burden on businesses with modest turnovers, provides a straightforward approach to meeting GST obligations. Small taxpayers can get rid of tedious GST formalities and pay GST at a fixed rate of turnover. In this article, we shall look at the Composition Scheme and explore how it benefits eligible businesses.

Section 1: Understanding the Composition Scheme under GST

The Composition Scheme is a special provision under GST designed for small businesses. It allows eligible businesses to opt for a simplified compliance mechanism, wherein they pay tax at a fixed rate on their turnover, without the need for detailed invoicing.

Section 2: Eligibility Criteria for Composition Scheme under GST

To avail of the Composition Scheme, a business must meet certain eligibility criteria, including,

1. For Manufacturer and traders, whose turnover is below Rs 1.5 crore  can opt for Composition Scheme
2. Not involved in inter-state supplies or e-commerce activities.
3. For service provider, turnover should not exceed Rs.50 lakh in the current financial year.

Section 3: Who cannot opt for Composition Scheme

The following people cannot opt for the Composition scheme

1. Manufacturer of ice cream, pan masala, or tobacco
2. A  person making inter-state supplies
3. A  casual taxable person or a non-resident taxable person

Section 4: Turnover limit for opting for composition scheme under GST

1. Manufacturer and traders, whose turnover is below Rs 1.5 crore  can opt for Composition Scheme
2. In respect of the special category states  the turnover limit is 75 lakh
3. For service provider the turnover limit is Rs. 50 lakh in the preceding financial year

Section 5: GST rates for a composition dealer

1. Manufactures and Traders – 1% ( 0.5% CGST and 0.5% SGST )
2. Restaurant not serving alcohol  – 5 % ( CGST 2.5% and SGST  2.5 % )
3. Other Service Provider – 6%  ( CGST – 3% and SGST 3% )

Section 6: Key Features of the Composition Scheme

1. Fixed Tax Rate: Businesses under the Composition Scheme pay tax at a fixed rate on their turnover, eliminating the need for complex calculations associated with regular GST filings.
2. Limited Compliance: Simplified compliance requirements mean fewer formalities, making it easier for small businesses to meet their tax obligations without the administrative burden.
3. No Input Tax Credit: One of the trade-offs of the Composition Scheme is that businesses cannot claim Input Tax Credit (ITC) on their purchases. The fixed tax rate is inclusive of all taxes.

Section 7: GST returns to be filed by a composition dealer

To opt for the Composition Scheme, eligible businesses must file a GST CMP-02 form before the start of the financial year in which they wish to join the scheme. A dealer is required to pay tax in a quarterly statement CMP – 8 by 18th of the month after the end of the quarter. Also, a return in form GSTR-4 has to be filed annually by 30th April of next financial year from FY 2019-20 onwards.

Section 8 : Advantages of Composition Scheme

1.  Lesser compliance
2. Limited tax liability
3. Increased liquidity

Section 9 : Limitations of Composition Scheme

1. Inability to make inter-state sales
2. Prohibition from collecting tax from customers
3. Exclusion from certain industries and activities

Conclusion:

The Composition Scheme under GST serves as a pragmatic solution for small businesses looking to streamline their tax compliance. By opting for simplicity over intricacy, businesses can focus on growth without being weighed down by complex tax calculations and extensive documentation. However, it’s essential for businesses to carefully evaluate their eligibility, weigh the pros and cons, and make an informed decision that aligns with their operational needs.

Disclaimer: The content and views stated in this article is solely for informational purpose only.

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