The advent of GST has brought a tax revolution in the country. It has also created a new way of business compliance in India. Where the bigger companies have all the required resources and skills to resolve the complications and specifications that the new tax structure brings along, but talking otherwise, there are many small companies, new startups, and SME’s (Small and Medium Enterprises) who are fighting with the new tax provisions and facing challenges for the compliance. In order to address the issues as these, the government has set up a “Composition Scheme”.
What is composition scheme?
The composition scheme is nothing but an extension of the current scheme under the VAT law. Under the Composition Scheme under GST, a taxpayer will need to file his / her ITR on a quarterly basis and not on the monthly basis as it is applicable for other regular businesses. Hence, a taxable person is required to file only one return i.e. GSTR-4 on a quarterly basis and an annual return in FORM GSTR-9A.
Who can take “Composition Scheme”?
The businesses that deal only in goods can go for the composition scheme including the restaurant sector taxpayers. The service providers have not been included in the ambit of a composition scheme. Any business that has a turnover not exceeding Rs. 75 Lakh can go for composition scheme.
Those who register themselves under the Composite Scheme will have to pay tax rate of 1% in the case of manufacturers, 2.5% for restaurant taxpayers, and 0.5% for other suppliers.
Why composition scheme?
Composition scheme is launched to help the small businesses. For small businesses often, things like timely recovery of taxes, filing of ITR, simple generation, and the maintenance of records, invoices and others documents becomes a challenge.
Exclusions of composition scheme
Following taxpayers cannot opt for the composition scheme:
- The supplier of goods not leviable under the Act
- Supplier of services
- Interstate supplier or import / export
- Supplier of goods through E-commerce
Benefits of composition Scheme
The benefits of this scheme are summarised below:
- Less number of filing of ITR, low maintenance of records etc. makes lower compliance
- The tax liability is no more than 2.5% instead of 18%
- Lower tax rate
Drawbacks of composition scheme
Few identified drawbacks are:
- Not available on inter-state transactions
- No benefit of ITC
- Strict action if a person wrongly avails this scheme
- Not available on supplies and e-commerce
Other know-how’s of composition scheme
The dealer registered under this scheme does not need to maintain detailed records like a regular taxpayer. The GST news also points out that under the composition scheme, a dealer is not allowed to avail ITC and he / she is also not allowed to issue a tax invoice.
The business news points out that if the composition dealer is found availing the benefit of the composition scheme wrongly, then the person will have to pay all the taxes just like a normal taxpayer. A penalty equivalent to an amount of tax payable may also be levied on him / her after a show-cause notice is issued to the dealer.
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