GST Composition Scheme

The GST Model Law has proposed a GST Composition Scheme for small businesses to help them with maintaining minimal compliance. Under GST, taxable persons having aggregate annual turnover of less than Rs. 50 lakhs are proposed to be made eligible for the GST composition levy. In this article, we look at the nuances of the GST Composition Scheme in detail.

GST – A Game Changer

With the implementation of GST, a host of benefit is expected and tremendous unlocking of synergy is expected. Consumers will not be subjected to double taxation. All taxes that are levied while purchasing good will include both the central government’s taxes as well as the state government’s taxes, reducing confusion. Further, with the implementation of GST, greater tax compliance has the potential to boost revenues for the government, and thereby help narrow budget deficit and allowing more funds to be allocated to various welfare schemes like schools and highway etc.

To ease the burden of small businesses in terms of compliance, under GST, a composition scheme has been announced similar to the composition scheme for income tax. Businesses under the scheme would be able to pay a minimal tax rate based on the turnover of the company and not having to worry about maintaining meticulous compliance – thereby focusing on the core business.  

GST Composition Scheme

The GST Composition Scheme will make compliance with tax laws hassle free for eligible businesses  opting for the scheme. Under the GST composition scheme, the rate of tax prescribed will be less than the regular GST rate but not less than 1% of the turnover during the financial year. However, the tax rates under the scheme are expected to be between 1% and 3%.

To be eligible under the scheme, the taxpayers must have an aggregate turnover not exceeding Rs. 50 lakh in a financial year. GST law defines aggregate turnover as the aggregate value of all taxable supplies, exempt supplies , export of goods and /or services and interstate supplies of person having the same PAN, to be computed on all India basis and excludes taxes, if any, charged under the head CGST Act, SGST Act and the IGST Act, as the case may be. Hence, aggregate turnover does not include the value of inward supplies on which tax is payable on reverse charges basis and the value of inward supplies.

Eligibility for GST Composition Scheme

GST model law prescribes stringent eligibility criteria for the composition scheme. Thus, taxpayers need to make voluntary registration every year for getting the benefits of GST Composition Scheme. However, if at any time the taxpayer crosses the minimum turnover limit of Rs. 50 lakh then he will be transferred to the regular scheme. Further, many of the small businesses that come under the following criteria would also not qualify for the scheme:

1. Who is engaged in the supply of services
2. People who make supply of goods those are not liveable to tax.
3. Who make interstate outward supply of goods
4. Who make supply of any goods through electronic commerce operator
5. Who is required to collect tax at source u/s 56
6. Who is manufacturer of such goods notified by the council.
7. This provision will be allowed to RTP only when all registered taxable person under the same PAN opt to follow the same scheme.
8. Permission granted to RTP shall be withdrawn on the day when his turnover exceeds Rs. 50 lakhs during financial year.
9. Person opted under sub section-1, cannot collect the composition tax from recipient on supplies and cannot take input tax credit.
10. Proper officer if noticed that RTP is not eligible for composition tax under sub section -1, ask such person to pay penalty in addition to tax due and may apply the provision of sec. 66 and 67.

Finally, as per section 16, those goods and services on which composition tax has been paid (under section 8) do not qualify for Input tax credit.

Benefits of GST Composition Scheme

Small businesses enjoy various advantages under the GST composition scheme. For instance, instead of filing 3-4 returns monthly, taxpayers registered under this scheme will be required to file returns once every quarter. In addition, small businesses could enjoy lower effective tax rate under the GST composition scheme.

Changing to GST Composition Scheme

As per section 16(12) of Model GST Law, when a taxpayer liable to pay tax as a regular taxable person switches over as a taxable person for paying tax under section 8 (GST Composition Scheme), then he needs to pay an amount by way of debiting in the electronic credit /cash ledger equivalent to Input Tax Credit in respect of inputs held in stock and inputs contained in semi- finished and finished goods held in stock as on the day immediately preceding the day of such switch over.

However, if a taxable person is found not eligible for this scheme then the tax authorities can impose a penalty equal to the amount of tax on such person along with his tax liability. Hence, utmost care needs to be taken when opting for this scheme and paying taxes.

Talk to an  Advisor about GST Registration.

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 👦A.SIVASANKARREDDY,

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