GST Composition Scheme

Goods and Service Tax is a game changer as because with its implementation, a tremendous outflow of benefits are expected. Today in India, there are numerous taxes such as Service Tax, VAT, Excise and many others that are ultimately borne by consumers leading to double taxation or having cascading effect. Post GST, around 17 taxes will be subsumed under one tax regime.

GST will apply to almost every assessee in business, thereby boosting revenues for the government. While purchasing goods or services both CGST and SGST i.e. both central and state taxes will be levied thereby eliminating all confusion. With the introduction of GST, a new regime of business compliance will be established.

Big organisations in India have the required resources and expertise that can facilitate the compliance procedures. On the other hand, small and medium enterprises (SMEs) and start-ups will have difficulty in complying with these provisions. Thus, to lower the burden of compliance for small businesses, a composition scheme has been introduced under GST law where the assessees have to pay tax at a minimum rate based on their turnover. This is mostly similar to the provisions in VAT law.

In this article, we’ve explained what is GST composition scheme, who can apply, eligibility criteria, it’s limitations and how it can benefit small businesses.


Eligibility For GST Composition Scheme

Getting registered under composition scheme is optional and voluntary. Any business which has a turnover less than Rs.50 Lakh can opt for this scheme but on any given day, if turnover crosses the above-mentioned limit, then he becomes ineligible and has to take registration under the regular scheme. There are certain conditions that need to be fulfilled before opting for composition levy.

They are as follows:

  • Any assessee who only deals in supply of goods can opt for this scheme that means this provision is not applicable for service providers. However, restaurant service providers are excluded.
  • There should not be any interstate supply of goods that means businesses having only intra state supply of goods are eligible.
  • Any dealer who is supplying goods through electronic commerce operator will be barred from being registered under composition scheme. For example: If M/s ABC sells its products through Flipkart or Amazon (Electronic Commerce Operator), then M/s. ABC cannot opt for composition scheme.
  • Composition scheme is levied for all business verticals with the same PAN. A taxable person will not have the option to select composition scheme for one, opt to pay taxes for other. For example, A taxable person has the following Business verticals separately registered – Sale of footwear, the sale of mobiles, Franchisee of McDonald’s. Here the composition scheme will be available to all 3 business verticals.
  • Dealers are not allowed to collect composition tax from the recipient of supplies, and neither are they allowed to take Input Tax Credit.

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