Composition scheme under GST – What you need to know?

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The tax administrators look for proper and timely execution of tax along with proper filing. It is also desirable that the invoices are documented properly, and records are simplified for the benefit of the tax administrators.

For the small scale businesses, such requirements bring challenges. To help the small businesses overcome these hurdles, a composition scheme has been prepared. The scheme has been introduced under the VAT law along with the eligibility condition that is applied. This composition scheme has included the taxable persons registered under the GST scheme with turnover below the pay tax limit.

GST Composition Scheme

This composition is available to the taxpayers with the desire to let the authority know of the willingness to get registered to the scheme. If the taxpayer cannot comply with the requirements, the taxpayer would then be treated as a regular taxpayer. The GST Council would also administer the taxpayer accordingly. The option is available for the businesses dealing with goods and services.

Turnover and Rate of GST Composition Scheme

A taxpayer registered under the GST bill, with turnover below ₹ 75 lakh, would pay GST rate of more than 1%. This rate is for the manufacturers. The restaurant owners would pay 2.5%, and for the other suppliers, the rate of tax would be 5%.

The persons who are not granted the scheme are –

  • The persons who supply goods that are not levied under Act
  • The persons who offer services
  • The ones who supply products through e-commerce

Additionally, in case someone operates multiple businesses from the same PAN number, the business owner needs to register all the businesses under the scheme. In case someone operates different business segments that are textile, electronics and accessories and grocery, the person would have to register the segments under the scheme.

No Tax, No Credit

On the B2B transaction, there would be no provision of input credit. Therefore, in case any taxable individual, who runs a business on the B2B scheme, would not get credit for input tax. Along with this, any buyer of such products will not get a tax credit. This would result in price distortion. This might also lead to loss of businesses because the buyers might not make purchases from a taxpayer who is under the composition scheme.

Even though the rate of composition tax is low, the taxpayers who are under the scheme are not allowed to collect this tax from the buyers. They are also not allowed to submit tax invoice. The burden of such tax befalls on the taxpayer only.

Lesser compliance

The ordinary taxpayers are required to file three different returns each month. Also, the taxpayer is required to submit a yearly consolidated tax return. The taxpayers who are registered under the composition scheme would be necessary to file a tax return quarterly. Because the taxpayers who are registered under the tax scheme would not have to pay tax at a standard rate, they would not have to issue a tax invoice either.

Penal Provision

In case the GST Council finds that a person who does not have the eligibility to opt for the composition scheme, has applied for it, the applicant would have to pay the penalty along with the differentiate taxes.

Benefits of the Scheme

Why should you opt for the scheme? Find the answer below –

It offers lesser compliance on maintenance of return and furnishings of records. Additionally, the person registered under the composition of tax scheme would not have to pay more than 2.5% tax. Also, the registered taxpayers under the composition scheme would pay lower tax rate.

Problems with the Scheme

Of course, there are some problems with the scheme. It offers limited possibilities for inter-state transactions. The scheme does not allow input tax credit from the ordinary tax payers either. Even though the tax rate for the registered person is lower, the taxpayer needs to carry the burden of tax under the scheme.

The current regime of composition scheme comes with several conditions.

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Parasshuram, with over 12 years of experience in the field of Online publishing, is an expert in SEO, ad placement, and network building. He is responsible for all aspects of content management including recruiting and training of writers at The GST Blog.

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