The Goods and Service Tax has many benefits. Earlier, you paid taxes in the form of VAT, excise tax, and service tax. With these taxes, you paid twice the usual taxes. The big companies in India comply with the processes. With the composition scheme of GST, small businesses can avoid going through a set of GST processes. Now you can pay the tax in small amounts as per the revenue of your business. The composition scheme under GST lowers regulatory costs for small taxpayers.
The GST Composition Scheme applies to businesses of small and medium sizes in India. This scheme allows you, with an annual turnover of less than Rs 1 crore, to submit GST at a set turnover rate. Let’s check who can apply for the composition scheme under GST.
Eligibility of Composition Scheme Under GST
You are eligible for the scheme if your revenue is less than Rs 1 crore in one financial year. The limit for Himachal Pradesh and North-Eastern states is Rs 75 lakh. But if your turnover goes above this limit on any given day, you become ineligible. So, you must register under the regular scheme.
Before applying for the composition scheme under GST, this is what you should keep in mind:
- You must have GST Registration
- You cannot claim an input tax credit.
- You cannot take advantage of this scheme if you are a service provider. It is available only to you if you are selling products. Yet, service providers for restaurants are exempted.
- You should not do any interstate distribution of commodities. That means, companies with intrastate supplies of goods are eligible.
- You cannot register if you are selling items via an e-commerce provider.
- You have many business lines under the same PAN (such as textiles, electrical accessories, groceries, etc.). In that case, you should register all these companies under the scheme or opt out of the scheme.
- You must have the phrase “composition taxable person” on each invoice you issue.
- For transactions governed by the reverse charge mechanism, you must pay tax at standard rates.
Who Is Not Eligible for the Composition Scheme Under GST?
Here is a list of people not eligible for the composition scheme under GST:
- Supplier engaged in the provision of services (excluding restaurants)
- Ice cream, pan masala, and tobacco manufacturers
- A casually taxable individual
- A non-resident taxable individual
- Businesses that sell products using an e-commerce site
The Benefits of the Composition Scheme
The benefits of opting for the composition scheme under GST are:
- You enjoy more liquidity since you need to pay less GST to the government.
- You have fewer duties (keeping records, filing taxes, and issuing invoices). Also, this gives you ample time to focus on core company operations.
- Your tax burden decreases. This is helpful for startups and smaller companies facing cash flow issues. If you have a revenue of less than Rs 1 crore, you may not have the funds to pay taxes. Hence, with the composition scheme under GST, we can say that the government is helping startups.
- In the composition scheme, a quarterly report under GSTR-4 would be uploaded by:
- 18th July
- 18th October
- 18th January
- 18th April
Limitations of Composition Scheme Under GST
1. Limits on business activities:
You may have to limit your scope to do business. You cannot carry out any interstate transactions. This includes importing and exporting goods and services.
2. Can’t claim input tax credits:
If you are a B2B seller, you cannot get credit for input tax paid.
3. No collection of tax:
You cannot charge taxes to customers. The rate of the GST composition scheme is less.
4. Penalty in case of issues found later:
There are penalties for any issues found. For example:
- If the tax authorities find that you were ineligible for registration, you will be penalized.
- Registration was granted by mistake.
Key Features of the GST Composition Scheme
- Bill of supply, not a tax invoice
The tax authorities will demand that registered payers under the GST composition scheme share the bill of supply. Hence, you may issue a bill of supply rather than an invoice.
If you do not qualify for the composition scheme under GST, you may have to pay a penalty. It may be similar to the amount of tax owed in addition to your tax burden. Hence, be aware while using this scheme and paying taxes. If you provide the wrong details to the composition scheme under GST, there is a penalty.
- Voluntary Registrations
To avail yourself of the scheme’s benefits, you must register yourself. If your yearly income turnover exceeds Rs. 75 lakh, you must switch to the regular scheme. You should register if you are currently part of the VAT composition.
- GST on Taxable Supplies
Before, you had to pay composition GST on exempted items. As of January 1, 2018, only taxable goods would be subject to GST.
Applicable GST Rates
The GST rates are applicable to composition manufacturers different from non-composition dealers. Refer to the table below for more details:
|Manufacturers and traders (goods)||0.5%||0.5%||1%|
|Restaurants not serving alcohol||2.5%||2.5%||5%|
|Other service providers||3.0%||3.0%||6%|
Return Filing of the Composition Scheme Under GST
If you are registered under the scheme, you must file a return in an authorized format. It must be within 18 days of the end of each quarter. The government has released the GST CMP 08 form for quarterly payments under this scheme.
The composition scheme under GST benefits small suppliers, intra-state local providers, and restaurants. It removes the need for them to follow many compliance requirements. If you want more details about GST, head to Piramal Finance, an online platform dedicated to all things finance, taxes, and investment. For more information on financial matters or about personal loans, credit cards, and financial management, check out more blogs on Piramal Finance’s website!