What Wikipedia Can’t Tell You About GST Composition Scheme?

The Goods and Services Tax (GST) Composition Scheme is a tax scheme that provides relief to small businesses by allowing them to pay a fixed percentage of their turnover as tax instead of the regular GST rates. However, businesses must comply with all the rules and regulations of the scheme to avoid penalties and fines. The Composition Scheme is especially beneficial for small businesses that have a low turnover and operate in a single state. It is also helpful for businesses that deal with a limited number of products or services. It is a simplified taxation system that allows eligible small businesses to pay a fixed percentage of their turnover as tax instead of the regular GST rates. This helps to reduce the compliance burden and costs associated with the regular GST system for small businesses. Furthermore, this article will discuss about the GST Composition Scheme and various information related to it.

What is GST Composition Scheme?

The GST Composition Scheme is a tax scheme under the GST regime in India. It is designed to simplify the tax compliance process for small businesses and reduce their tax burden. Under the composition scheme, small businesses with an annual turnover of up to Rs. 1.5 crore can opt to pay a fixed percentage of their turnover as tax instead of the regular GST rates. The composition scheme is only available to businesses that deal with goods and not services. The tax rate under this scheme is lower than the regular GST rates, but businesses cannot claim Input Tax Credit (ITC) on their purchases. Also, businesses under the scheme cannot collect GST from their customers and must pay the tax out of their own pockets.

Businesses under the composition scheme must file quarterly returns instead of the regular monthly returns, and the process is much simpler than regular GST compliance. However, businesses must ensure that they comply with all the rules and regulations of the composition scheme to avoid penalties and fines.

Benefits of GST Composition Scheme

It provides several benefits to small businesses in India, including:

• Reduced tax liability: The Composition Scheme allows businesses to pay a fixed percentage of their turnover as tax, which is lower than the regular GST rates. This reduces the tax liability for small businesses.
• Simplified compliance: The Composition Scheme simplifies the compliance process for small businesses, as they only need to file quarterly returns instead of the regular monthly returns. This reduces the compliance burden for small businesses.
• Increased cash flow: Businesses under the Composition Scheme cannot claim ITC on their purchases, but they also do not have to pay tax on every purchase. This leads to an increase in cash flow for small businesses.
• Limited liability: Businesses under the Composition Scheme have limited liability in case of errors or mistakes in the tax return. This reduces the risk of penalties and fines for small businesses.
• Competitive advantage: The reduced tax liability under the Composition Scheme provides small businesses with a competitive advantage over larger businesses that cannot avail of the scheme.

Who can avail the GST composition scheme?

The GST Composition Scheme is available for small businesses with an annual turnover up to a certain limit. As of present, businesses with an annual turnover of up to Rs. 1.5 crore can avail of the Composition Scheme. However, there are certain conditions that businesses must meet to be eligible for the scheme. The following are the types of businesses that can avail of the Scheme:

• Food-service unit
• Machine Operator
• Truck Operator
• Small Manufacturing Unit
• Repair Shop
• Artisan
• Manufacturing/ Trade sector
• Vegetable and Fruit vendor

What are the tax rates applicable for the composition scheme of GST?

The tax rates applicable for the Composition Scheme of GST vary based on the type of business. The following are the tax rates applicable for the Composition Scheme as of 2021:

• Manufacturers and traders: Businesses that manufacture goods or trade in goods are eligible for the Composition Scheme and must pay a tax rate of 1% on their turnover.
• Restaurants: Businesses that provide food and beverages are eligible for the Composition Scheme and must pay a tax rate of 5% on their turnover.

GST Composition Scheme Rule

The following are some of the important rules and provisions of the Composition Scheme Rule in India:

• Eligibility: Businesses with an annual turnover of up to Rs. 1.5 crore can opt for the Composition Scheme.
• Goods-only: The scheme is only available to businesses that deal with goods and not services.
• Tax rate: Businesses under the Composition Scheme pay a fixed percentage of their turnover as tax instead of the regular GST rates. The tax rate varies depending on the type of business, ranging from 0.5% to 6%.
• No ITC: Businesses under the Composition Scheme cannot claim ITC on their purchases.
• No GST collection: Businesses under the Composition Scheme cannot collect GST from their customers and must pay the tax out of their own pockets.
• Quarterly returns: Businesses under the Composition Scheme must file quarterly returns instead of the regular monthly returns.
• Inter-state transactions: Businesses under the Composition Scheme cannot engage in inter-state transactions.
• Limited liability: Businesses under the Composition Scheme have limited liability in case of errors or mistakes in the tax return.
• Validity: Businesses under the Composition Scheme must renew their registration every year.

How to apply for GST Composition Scheme?

A business can apply for this Scheme by following the below steps:

• Log in to the GST portal using your credentials (user ID and password).
• Navigate to the Services section and select the “Registration” option.
• Click on the “New Registration” option and select the “Composition” option.
• Enter the required details such as the legal name of the business, PAN number, email address, and mobile number.
• Provide additional information such as the nature of the business, business address, bank account details, and details of authorized signatories.
• Upload the required documents such as PAN card, bank statement, and address proof.
• Submit the application and pay the necessary fees.

After submission of the application, a GST officer will verify the application and may request additional information or documents if required. Once the verification process is complete, the GST officer will approve the application if all the requirements are met. It is important to note that businesses must renew their registration for the Composition Scheme every year. Additionally, businesses must comply with all the rules and regulations of the Composition Scheme to avoid penalties and fines.

In summary, a business can apply for this Scheme by logging in to the GST portal, selecting the “Composition” option, entering the required details, uploading the necessary documents, and submitting the application. The application will be verified by a GST officer, and if approved, the business can avail of the benefits of the Composition Scheme.

What is the GST Composition Scheme Limit?

It limits maximum annual turnover that a business can have to be eligible to opt for the Composition Scheme. The limit for the scheme has been revised from time to time, and as of current, the limit is Rs. 1.5 crore. This means that businesses with an annual turnover of up to Rs. 1.5 crore can opt for the scheme and pay a fixed percentage of their turnover as tax instead of the regular GST rates. However, businesses that operate across different states or engage in the export of goods or services are not eligible for the Composition Scheme.

It is important to note that businesses that opt for the Scheme cannot collect GST from their customers and must pay the tax out of their own pockets. Additionally, businesses under the Composition Scheme cannot claim ITC on their purchases.

Takeaway

This Scheme is an optional tax scheme that provides relief to small businesses by allowing them to pay a fixed percentage of their turnover as tax instead of the regular GST rates. However, businesses must comply with all the rules and regulations of the scheme to avoid penalties and fines. It has several rules and provisions that businesses must comply with to take advantage of the scheme’s benefits. It is essential for businesses to understand these rules and provisions to ensure compliance and avoid penalties and fines. It provides several benefits to small businesses, including reduced tax liability, simplified compliance, increased cash flow, limited liability, and a competitive advantage. These benefits make the scheme an attractive option for small businesses in India. This scheme limit is the maximum annual turnover that a business can have to be eligible to opt for the Composition Scheme.