February 23, 2023

Highlights of Composition Scheme under GST

The Composition Scheme under GST is a relief for small taxpayers who are unable to comply with the complex GST rules and regulations. This scheme is designed to simplify the tax compliance process and reduce the burden of tax compliance on small businesses and start-ups. Here are some of the highlights of the Composition Scheme under GST:

1. Eligibility Criteria

The Composition Scheme under GST is available to businesses whose turnover does not exceed Rs. 1.5 crores in a financial year. This threshold limit was increased from Rs. 75 lakhs to Rs. 1.5 crores in the 32nd GST Council meeting held on January 10, 2019. In addition, the scheme is available only to taxpayers who deal in goods and not services.

2. Reduced Tax Rate

Under the Composition Scheme, taxpayers are required to pay a fixed percentage of their turnover as tax. The tax rate is significantly lower than the regular GST rate. For manufacturers and traders, the tax rate is 1% of the turnover. For restaurants, the tax rate is 5% of the turnover. This is a significant reduction from the regular GST rate, which ranges from 5% to 28%.

3. No Input Tax Credit

Taxpayers under the Composition Scheme are not eligible to claim Input Tax Credit (ITC) for the taxes paid on their purchases. This means that they cannot reduce their tax liability by claiming credit for the taxes paid on their inputs. This is a trade-off for the lower tax rate under the scheme.

4. Simple Compliance

The Composition Scheme is designed to simplify the compliance process for taxpayers. Under the scheme, taxpayers are required to file only one quarterly return instead of three monthly returns. In addition, they are not required to maintain detailed records of their purchases and sales. This reduces the compliance burden on small taxpayers.

5. Limited Liability

Taxpayers under the Composition Scheme have a limited liability in case of any tax liability arising from their business. The liability is limited to the turnover declared under the scheme. This provides a sense of security to small taxpayers who may not have the resources to deal with large tax liabilities.

6. No Annual Audit

Taxpayers under the Composition Scheme are not required to undergo an annual audit. This saves them the cost and hassle of getting their accounts audited by a Chartered Accountant.

In conclusion, the Composition Scheme under GST is a boon for small businesses and start-ups in India. It simplifies the tax compliance process, reduces the compliance burden, and offers a lower tax rate. However, taxpayers should carefully evaluate the benefits and drawbacks of the scheme before opting for it.


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