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Published on:
February 20, 2023
By
Paramita

Analysis Procedural Aspects for Composition Levy under GST

Goods and Services Tax (GST) was implemented in India on July 1, 2017. One of the key features of GST is the Composition Scheme, which is designed for businesses with a turnover of up to Rs. 1.5 crore. Under this scheme, businesses can pay tax at a lower rate and enjoy a reduced compliance burden. In this article, we will delve into the analysis and procedural aspects of the Composition Levy under GST.

Composition Levy under GST

The Composition Levy is a simple tax scheme that is designed to help small and medium sized businesses. Under this scheme, businesses can pay a fixed percentage of their turnover as tax instead of paying the regular GST rates. The rate of tax under the Composition Scheme is lower than the regular GST rates. Businesses that opt for the Composition Scheme are relieved of certain compliance requirements.

However, businesses that opt for the Composition Scheme are not eligible for Input Tax Credit (ITC). They cannot collect taxes from their customers nor can they issue a tax invoice. They cannot engage in inter-state supplies and they cannot supply goods through an e-commerce operator.

Analysis of Composition Levy

The Composition Scheme is an optional scheme that businesses can choose to opt for if they meet certain conditions. The primary objective of this scheme is to reduce the compliance burden on small and medium sized businesses. Under this scheme, businesses can pay a fixed percentage of their turnover as tax instead of paying the regular GST rates.

The Composition Levy scheme is only applicable to businesses whose aggregate turnover is less than Rs. 1.5 crore. Businesses that are registered under the Composition Scheme are required to pay a flat rate of tax that is lower than the regular GST rates. The applicable rates of tax under the Composition Scheme are as follows:

1. Manufacturers - 1%

2. Suppliers of food and drinks (other than alcohol) - 2.5%

3. Other suppliers - 0.5%

Businesses that are registered under the Composition Scheme are not eligible for Input Tax Credit (ITC). This means that they cannot claim a credit for the tax paid on their purchases. They cannot collect taxes from their customers nor can they issue a tax invoice. They cannot engage in inter-state supplies and they cannot supply goods through an e-commerce operator.

Businesses that are registered under the Composition Scheme are required to pay tax on a quarterly basis. They are required to file returns on a quarterly basis as well. The due date for filing returns for businesses registered under the Composition Scheme is the 18th of the month following the end of the quarter.

Procedural Aspects of Composition Levy

Businesses that are registered under the Composition Scheme are required to follow certain procedures. They are required to issue a Bill of Supply instead of a tax invoice. The Bill of Supply should contain the following details:

1. Name, address, and GSTIN of the supplier

2. A consecutive serial number

3. Date of issue of the Bill of Supply

4. Description of the goods or services supplied

5. Value of the goods or services supplied

Businesses that are registered under the Composition Scheme are required to file returns on a quarterly basis. They are required to file GSTR-4 returns. The due date for filing GSTR-4 returns is the 18th of the month following the end of the quarter. The GSTR-4 return should contain the following details:

1. Basic details of the taxpayer

2. Details of outward supplies made during the quarter

3. Details of inward supplies received during the quarter

4. Details of tax paid

Businesses that are registered under the Composition Scheme are not required to maintain detailed records of their purchases and sales. However, they are required to maintain a summary of their purchases and sales. They are required to maintain a record of the following:

1. Total value of goods purchased during the quarter

2. Total value of services received during the quarter

3. Name and address of the suppliers from whom goods have been purchased

4. Name and address of the persons to whom goods have been supplied

5. Details of the tax paid

Conclusion

The Composition Scheme is a simple tax scheme that is designed to help small and medium sized businesses. Under this scheme, businesses can pay a fixed percentage of their turnover as tax instead of paying the regular GST rates. The rate of tax under the Composition Scheme is lower than the regular GST rates. However, businesses that opt for the Composition Scheme are not eligible for Input Tax Credit (ITC). They cannot collect taxes from their customers nor can they issue a tax invoice. They cannot engage in inter-state supplies and they cannot supply goods through an e-commerce operator.

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Updated on:
March 16, 2024