GST Composition Scheme

GST Composition Scheme is defined as a tax-paying mechanism which is validly offered to small scale businesses. If comparison is made with the regular GST filing procedure, the former leads to two benefits ahead- reducing the amount of paperwork and compliance to less tax liability to be paid off. If a GST composition scheme is applied then filing of the tax would become easier enough as it would lead to the filing of only one quarterly return and one annual return. Once a person gets registered under the composition scheme, becomes liable enough to pay about 1 to 6% of the fixed rate of tax on the amount of turnover. If a person is indulged in the manufacturing of goods other than tobacco or pan masala, becomes liable to pay off only 1% of tax on the turnover generated per year.

Who can fall under the category of opting for the Composition Scheme of GST?

Only those taxpayers whose turnover falls under the bar of 1.5 crore can avail this composition scheme. While in the case of time zone regions like- north eastern states the prescribed limit lies up to 75lakhs. According to CGST(Amendment Act) of 2018, a composition dealer too had an opportunity to supply the services up to the limit of 10% of the turnover amount or 5lakh rupees whichever is higher, which got implemented and executed from 1st February, 2019. While in a 32nd meeting of the GST council a proposal was kept to increase this limit for the service providers. But with the condition that the turnover of all those businesses registered with the same PAN number will not be considered while calculating the turnover. While the threshold limit had significantly increased from 1crore to 1.5crores.

Rules for GST composition scheme

According to GST Act, ones who can register under this scheme includes: manufacturing and service businesses and even traders, but there are range of people or businesses who are not allowed to get themselves registered under the Act-

• Those businesses and individuals who are engaged in the supply of goods through an e-commerce platform that collect tax at source.
• The person who is a non-resident but taxable person or casual person who is exposed to tax.
• Manufacturers of ice-cream or other ice and cocoa as an addition in the ice.
• Tobacco and pan masala manufactured products and related substitutes.
• The business firms or individuals who get their goods supplied from unregistered suppliers or the suppliers from whom the goods are extracted are exempted from GST Act provisions.
• Suppliers who are actively involved in the supply of goods and services.

Categories those who can or cannot avail the composition scheme benefits

If the annual turnover limit falls within the limit of the scheme then can avail the benefits of composition scheme. Basically small manufacturers, traders and service providers can enjoy the benefit of this scheme.

• • Small shopkeepers
• • Food selling units
• • Small manufacturing hub units
• • Manufacturing or trading units
• • Vendors and truck operators
• • Machine operators
• • Shops doing repairs and renewals
• • Artisans and weavers

Conditions which need to be fulfilled to avail the benefit of Composition Scheme

There are few conditions which need to get fulfilled before moving to avail the benefit of Composition scheme of GST:

• • If the dealer is looking to avail the benefit of Composition scheme then it can’t avail the Input Tax Credit
• • The dealer is not allowed to supply goods which are non-taxable under GST like alcohol.
• • The taxpayer would be liable to pay normal rated taxes under Reverse Charge Mechanism.
• • If an individual who is taxable posses different segmented businesses under the same PAN number, it would be compulsory for them to get all of them registered collectively or opt out of the scheme.
• • At every place of the business, a taxpayer needs to mention ‘composite taxpayer’.
• • According to CGST Act, 2018 a manufacturer or trader have an exemption to supply services up to an extent of 5% of turnover or 5 lakhs whichever stays higher.
• To get under the composition scheme a taxpayer is obliged to file under the form of GST CMP-02 with the government, but this must be informed by the dealer at the beginning of every financial year for opting the composition scheme. Thus this can be done either by logging in the online portal or through offline mode. GST rates applicable on the turnover of the composite dealers Types of business CGST SGST Total Manufacturer and trader of goods 0.5% 0.5% 1.0% Restaurants not offering alcohol 2.5% 2.5% 5.0% Other service providers 3.0% 3.0% 6.0%

Major advantages of GST Composition Scheme

The major benefits that a dealer can avail includes: • Declined tax payments- the liability to pay tax rates had reduced due to incorporation of new tax rate structure. • Less compliance needs- tax payers now fall under the obligation of filing fewer returns and side- step the requirement to provide the tax invoices rather than maintaing and keeping book of records. • Enhanced liquidity- reduction in tax liability through fixed rates helps in converting high level of liquidity for the business firms as per the financial perspective. Greater amount of liquidity would lead to better cash flows and would help in smooth operating of business functions.

Consequences of Composition Scheme

There exists some pitfalls that an individual or a trader must look into before getting registered includes: • Input tax credit not allowed- the business who are dealing with business firms only are not allowed to credit the input tax so paid from the output liability. The buyer of the goods wouldn’t get anything in return as credit on tax, leading to price distortion or generating cascading effect. If a buyer is registered as a taxpayer will not be allowed to avail any benefit or credit from person registered under composition scheme, so would avoid to make purchases from such person. • Tax cannot be collected- taxpayers are not allowed to recover the tax paid from buyers as they haven’t raised invoice. • Restricted geographical reach- GST composition scheme don’t cover the inter-state transactions.