Benefits of Composition Scheme under GST

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Although GST was introduced to make the taxation process simple but at present it seems that businessmen are not only getting confused but worried also about GST compliances. Three returns in a month, Reverse Charge Mechanism, GST on Expenses and Input Credit Procedure between CGST, SGST and IGST, are few of the things which a small businessman is finding difficult to understand and follow as well.

So far Business Units with annual turnover up to Rs. 75 lakhs (50 lakhs for North East States) Composition Scheme has been introduced:

  • Under this Scheme a very nominal tax is to be paid by the GST dealer @ 1% to 2.5%.
S. NO Particulars CGST SGST Total rate of tax
1. Business Units Manufacturing Goods other than notified Goods 1% 1% 2%
2. Food and Alcohol Supplier (Restaurants) 2.5% 2.5% 5%
3. Others 0.5% 0.5% 1%
  • Tax Invoices to be issued, it means invoices to be issued but tax is not to be levied on the invoice.
  • Input Tax Credit on purchases cannot be availed.
  • It means this tax is to be born by the GST Dealer registered under Composition Scheme.
  • Lesser Compliance is the main merit of this scheme:
  1. One Return after three months, while total 37 returns are to be filed by Regular GST dealer that means in Composition Scheme only 4 Returns in a Year.
  2. As tax invoice is not to be issued and only a bill of supply is to be issued so billing/invoicing will be very easy due to less details to be filled.
  3. Less tax liability is also one of the merits.

Reverse Charge mechanism on purchases from Non-GST Registered Suppliers is applicable on business units opting to Composition Scheme in GST.

This scheme is not available for following entities:

  1. Service Providers.
  2. Supplier of goods which are not leviable under GST.
  3. A person who wants to sell goods out of the state including Export/Import.
  4. Business entities supplying goods through E-commerce operators.
  5. Persons manufacturing those goods for which GST Act prohibits Composition Scheme.
  • Provisions for persons doing multiple businesses: If a person is doing multiple businesses then thresh hold turnover of Rs. 75 lakhs will be applicable on all businesses collectively. It means if he opts for composition scheme then composition scheme will be applicable on all businesses and his turnover of all the businesses will be clubbed and it should not be more than Rs. 75 lakhs.
  • Penalty Provisions: If on later date, it is found that the person obtaining for Composition Scheme is not eligible for the same then he will be liable to the differential amount of tax with penalty.

A person can switch on from normal tax payer to composition scheme and composition scheme to normal tax payer as per Transition Provision for GST Composition Scheme.

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