Composition Scheme is a simple and easy scheme under GST for taxpayers. Small taxpayers can get rid of tedious GST formalities and pay GST at a fixed rate of turnover. This scheme can be opted by any taxpayer whose turnover is less than Rs. 1.5 crore*.
a tax-paying mechanism offered to the country’s small businesses to impart benefits like reduced tax compliance and paperwork alongside lower taxation liabilities.
Businesses with a turnover of less than Rs. 1.5 crore can opt for the Composition Scheme under GST and pay their taxes at a fixed rate of their annual turnover.
For instance, those registering under this scheme can pay their taxes at the rates of 1% to 6% of their total turnover and file one quarterly and one annual return each year. Alternatively, those not registered under this scheme need to submit 4 GST returns each year – 3 monthly and one annual.
Who is Eligible to Opt for this Composition Scheme?
As mentioned before, taxpayers with annual turnover below Rs. 1.5 crore can opt for this scheme. Further, for Himachal Pradesh and the North-Eastern states, this limit has been further reduced to Rs. 75 lakh per year. This cap is, however, set solely for manufacturers, traders and restaurants that do not serve alcohol.
For service providers, the cap is set at Rs. 50 lakh.
One must remember here that the collective turnover of businesses registered under the same PAN will be taken into account while gauging their eligibility to avail the benefits extended under GST Composition Scheme.
Who Cannot Opt for this Scheme?
Taxpayers belonging to the following categories are not eligible to avail the benefits of this scheme –
- Those engaged in making inter-state supplies.
- Businesses engaged in supplying goods via e-commerce platforms.
- Pan masala, tobacco and ice-cream manufacturers.
- Any non-resident and casual taxable person.
Conditions to Opt for this Scheme
Before taxpayers register themselves under the composition scheme, they must take note of the following conditions pertaining to its applicability –
- Dealers registering under the scheme cannot be engaged in supplying goods that do not attract GST (e.g. alcohol).
- Dealers who opt for the benefits under this scheme cannot claim input tax credits.
- Any transaction made under the mechanism of reverse charges will be taxed normally.
- Taxpayers opting for this scheme will need to mention that they are a “composite taxable person” on every signboard or notice displayed at the location of their business. They will also need to put down these words on the bills of supply issued.
- If a taxpayer has businesses belonging to multiple sectors like electronic accessories, textile, groceries, etc., registered under the same PAN, all such businesses will need to be registered collectively. Otherwise, the taxpayer will have to opt-out of this scheme.
- According to the CGST (Amendment) Act of 2018, traders and manufacturers who extend services up to Rs. 5 lakh or up to 10% of their total turnover (whichever is higher) are eligible to avail the benefits of GST Composition Scheme. This provision was brought into effect from 1st February 2019.
With such GST Composition Scheme rules under consideration, taxpayers can proceed to register themselves under this scheme.
How to Opt for this Scheme?
Step 1 – Enter the registered ID and password to the GST portal and log in.
Step 2 – Navigate to “Services” and choose the option “Registration” from the drop-down menu. Next, click on the option marked – “Application to opt for composition levy”.
Step 3 – Read the scheme’s terms carefully and check the box provided for confirmation. Next, fill the boxes marked “Place” and “Name of authorising signatory” by choosing the right options from the drop-down menu and save them.
Step 4 – To submit the details, LLPs and companies need to choose the option marked “Submit with DSC”. All other taxpayers can choose between “Submit with EVC” or “Submit with e-signature”.
Step 5 – A warning sign will pop up next, under which one will find the “Proceed” option. Click on it.
By doing so, the application will be submitted successfully. Registered taxpayers will receive a confirmation on their designated email IDs or mobile numbers.
Once the registration is successfully completed, taxpayers will be able to enjoy the benefits extended under the GST Composition Scheme.
Benefits of this Scheme
Reduced interest rates- The GST Composition Scheme rates are significantly lower than what is levied normally.
Increase in liquidity- Owing to the fixed rate of taxation extended under this scheme, businesses can enjoy higher liquidity and maintain a better cash flow. Thus, the scheme can effectively ensure smoother operations for businesses.
Minimal compliance- With this system in effect, taxpayers can do away with the need to file multiple returns and thus enjoy relaxation in compliance.
Disadvantages of this Scheme
Restriction on tax collection- Taxpayers registered under this scheme cannot raise invoices or collect composition taxes for their buyers.
Input tax cannot be credited- Businesses are not allowed to collect input tax from any output liability. Further, buyers of these goods cannot collect credit from input tax. This can lead businesses registered under the composition scheme to lose out on customers.
FAQs
What is the composition scheme for taxpayers?
The composition scheme is a simplified taxation scheme designed for small businesses. Under this scheme, taxpayers are taxed at a flat rate on their turnover, rather than the regular GST rates applicable to various goods and services.
Who is eligible to register under the composition scheme?
Eligibility criteria vary by jurisdiction, but generally, small businesses with a turnover below a certain threshold are eligible to register under the composition scheme. However, certain businesses, such as manufacturers of goods, service providers, and interstate sellers, may not be eligible.
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