Composition Scheme under GST- Lets Understand

The Goods and Services Tax (GST) is a comprehensive indirect tax that replaced multiple indirect taxes levied on goods and services by the central and state governments. The GST regime introduced a Composition Scheme for small businesses to reduce their compliance burden and ease their tax compliance process. The Composition Scheme under GST is a simplified tax regime for small and medium-sized enterprises (SMEs) registered under GST.

What is Composition Scheme under GST?

The Composition Scheme under GST is a scheme that allows small and medium-sized businesses to pay a fixed percentage of their turnover as tax instead of the regular GST rates. The scheme is optional, and businesses that opt for it have to follow different rules than those registered under the regular GST scheme. The Composition Scheme is designed to reduce the compliance burden on SMEs and provide them with a simpler tax system.

Who can opt for Composition Scheme under GST?

The Composition Scheme under GST is available to businesses with an annual turnover of up to Rs. 1.5 crore. The scheme is not available to businesses that are engaged in interstate supplies, e-commerce operators, or that supply goods through e-commerce platforms. Service providers are also not eligible for the Composition Scheme. Only manufacturers, traders, and restaurant owners can opt for the scheme.

Benefits of Composition Scheme under GST

There are several benefits of the Composition Scheme for small and medium-sized businesses:

Reduced tax liability:

The Composition Scheme allows businesses to pay a fixed percentage of their turnover as tax instead of the regular GST rates, which can be lower than the regular GST rates.

Lower compliance burden:

SMEs registered under the Composition Scheme have to file quarterly returns instead of monthly returns, which reduces their compliance burden.

Increased liquidity:

The Composition Scheme reduces the tax liability of SMEs, which increases their liquidity and cash flow.

Rules under Composition Scheme under GST

Businesses that opt for the Composition Scheme under GST have to follow certain rules:

Payment of tax:

Businesses registered under the Composition Scheme have to pay tax at a fixed percentage of their turnover. The tax rates are different for manufacturers, traders, and restaurant owners.

No input tax credit:

Businesses registered under the Composition Scheme cannot claim input tax credit on the goods and services they purchase.

No interstate supplies:

Businesses registered under the Composition Scheme cannot make interstate supplies.

No sale through e-commerce platforms:

Businesses registered under the Composition Scheme cannot supply goods through e-commerce platforms.

No voluntary registration:

Businesses cannot voluntarily register under the Composition Scheme.

How to opt for Composition Scheme under GST?

Businesses that are eligible for the Composition Scheme can opt for it during the registration process or by filing an application in Form GST CMP-02. The application has to be filed before the start of the financial year in which the business wants to opt for the scheme.

Conclusion

The Composition Scheme under GST is a simplified tax regime for small and medium-sized businesses that reduces their compliance burden and provides them with a simpler tax system. Businesses that opt for the Composition Scheme have to follow different rules than those registered under the regular GST scheme. The scheme is not available to businesses that are engaged in interstate supplies, e-commerce operators, or that supply goods through e-commerce platforms. Only manufacturers, traders, and restaurant owners can opt for the scheme.