Composition Levy Scheme in GST- All You want to Know

The Goods and Services Tax (GST) regime in India has brought about many changes in the indirect tax system. One of the changes is the introduction of the Composition Levy Scheme in GST. This scheme is designed to simplify the compliance burden for small taxpayers by providing a reduced compliance burden and a concessional tax rate.

What is the Composition Levy Scheme in GST?

The Composition Levy Scheme is a voluntary scheme that is available to small taxpayers whose aggregate turnover does not exceed Rs. 1.5 crore. Under this scheme, taxpayers are required to pay a fixed percentage of their turnover as tax instead of paying tax under the regular GST system. Currently, the tax rate is 1% for manufacturers, 2.5% for restaurant services, and 0.5% for other suppliers.

However, taxpayers opting for the Composition Levy Scheme are not eligible to claim input tax credit. This means that they cannot claim the credit of the GST paid on their purchases. Moreover, they are also not allowed to make inter-state supplies. Hence, they can only supply goods or services within the same state.

Who is Eligible for the Composition Levy Scheme?

The Composition Levy Scheme is available to small taxpayers who fulfill the following conditions:

The aggregate turnover of the taxpayer should not exceed Rs. 1.5 crore in the preceding financial year.
The taxpayer should not be engaged in making inter-state supplies.
The taxpayer should be engaged in the supply of goods or services or both.

It is important to note that certain businesses are not eligible for the Composition Levy Scheme, such as manufacturers of ice cream, pan masala, or tobacco products. Additionally, e-commerce operators and persons making supplies through e-commerce operators are not eligible for this scheme either.

Advantages of the Composition Levy Scheme

The Composition Levy Scheme offers several advantages to small taxpayers:

Reduced Compliance Burden: Taxpayers under this scheme are required to file quarterly returns instead of monthly returns. This reduces the compliance burden and saves time and effort.
Concessional Tax Rate: The tax rate under this scheme is much lower than the regular GST rate. This helps small taxpayers save money and remain competitive in the market.
Less Record Keeping: Taxpayers under this scheme are not required to maintain detailed records of their purchases and sales. This simplifies the accounting process and reduces the cost of compliance.

Disadvantages of the Composition Levy Scheme

While the Composition Levy Scheme offers many benefits, it also has some disadvantages:

No Input Tax Credit: Taxpayers under this scheme cannot claim the input tax credit. This reduces the tax savings that can be achieved through this scheme.
Restriction on Inter-state Supplies: Taxpayers under this scheme cannot make inter-state supplies. This limits their potential market and growth opportunities.
Eligibility Conditions: Not all small taxpayers are eligible for this scheme. Businesses engaged in certain activities or making inter-state supplies cannot opt for this scheme.

How to Opt for the Composition Levy Scheme?

Taxpayers who wish to opt for the Composition Levy Scheme can do so by filing the relevant form on the GST portal. They will be required to furnish details of their aggregate turnover and other relevant details. Once the form is submitted, the taxpayer will be registered under the Composition Levy Scheme and will be required to pay tax at the applicable rate.

Conclusion

The Composition Levy Scheme is a useful scheme for small taxpayers who want to reduce their compliance burden and save money on taxes. However, taxpayers should carefully consider the advantages and disadvantages of this scheme before opting for it. They should also ensure that they fulfill all the eligibility conditions before applying for this scheme.