Composition Scheme under GST- Let's Understand in Detail

Goods and Services Tax (GST) has been implemented in India since 1st July 2017, and it has been an important step towards simplifying the tax system for businesses. Under GST, there is a provision for the Composition Scheme, which is a simplified scheme for small businesses and traders to simplify their tax compliance. In this article, we will discuss the Composition Scheme under GST in detail.

What is the Composition Scheme under GST?

The Composition Scheme under GST is a simple and easy-to-follow scheme for small business owners and traders. This scheme is applicable to those businesses whose annual turnover is less than the prescribed limit of Rs. 1.5 crore. Under this scheme, they can pay tax at a fixed percentage of their turnover and avoid the tedious and complex GST compliance procedures.

Who can opt for the Composition Scheme under GST?

The Composition Scheme under GST is ideal for small business owners and traders who have a turnover of less than Rs. 1.5 crore per annum. The following businesses can opt for the Composition Scheme:

1. Manufacturers

2. Retailers

3. Wholesalers

4. Restaurants and cafes (not serving alcohol)

5. Service providers (except for those providing professional services)

What are the benefits of the Composition Scheme under GST?

The Composition Scheme offers several benefits to small business owners and traders, which are as follows:

1. Reduced compliance burden: Businesses under the Composition Scheme are required to file only one quarterly return instead of three monthly returns that are required for regular taxpayers. This reduces the compliance burden on small businesses.

2. Lower tax rates: Businesses under the Composition Scheme are required to pay tax at a lower rate than the regular taxpayers. For manufacturers and traders, the tax rate is 1%, and for restaurants, it is 5%.

3. No input tax credit: Businesses under the Composition Scheme are not allowed to claim input tax credit on their purchases. This is because the tax rate is already lower for them, and the government does not want them to reap further benefits by claiming input tax credit.

What are the limitations of the Composition Scheme under GST?

While the Composition Scheme offers several benefits, it also has some limitations, which are as follows:

1. No interstate sales: Businesses under the Composition Scheme are not allowed to make interstate sales. They can only make sales within the state.

2. No tax collection: Businesses under the Composition Scheme are not allowed to collect tax from their customers. They have to pay tax from their own pocket.

3. No threshold limit: Unlike regular taxpayers, businesses under the Composition Scheme do not have a threshold limit. They have to pay tax even if their turnover is less than Rs. 20 lakh.

How to opt for the Composition Scheme under GST?

If you are a small business owner or trader, and your annual turnover is less than Rs. 1.5 crore, you can opt for the Composition Scheme under GST. To opt for the Composition Scheme, you need to follow these steps:

1. Log in to the GST Portal using your credentials.

2. Select the 'Application to opt for the Composition Scheme' option from the Services tab.

3. Fill in the required details and submit the form.

Your application will be verified, and if everything is in order, you will be registered under the Composition Scheme.

Conclusion

The Composition Scheme under GST is a boon for small business owners and traders who want to simplify their tax compliance. It reduces the compliance burden and tax liability on small businesses, making it easier for them to focus on their core business activities. However, businesses need to carefully evaluate the benefits and limitations of the Composition Scheme before opting for it.