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Everything That Small And Medium Tax Payers Should Know About GST Composition Scheme

Introduction of GST in 2017 has changed the dynamics of business and economy in the country. Conversely, alternative tax registration like GST composition scheme was introduced to ease the burden of small and medium business taxpayers.

GST composition scheme does provide extra features than the composition scheme used under VAT. Small and medium business taxpayers can now avoid mind-numbing GST procedures and pay the tax at a static rate of turnover.

GST composition scheme can be availed by any small and medium taxpayer who generates an aggregated turnover amount of less than INR 1.5 crore. In case of special category states like North-Eastern states, Himachal Pradesh, barring J&K the amount is INR 75 lakh.

Who can go for the GST Composition Scheme?

Any functioning business with a turnover of nearly INR 1.5 crores can avail the scheme (Threshold is INR 75 lakh for special category states).

That apart, any service provider who has less than INR 50 lakhs of turnover in a year can also opt for the scheme.

Who cannot avail the scheme?

  • Ice-Cream, tobacco, and pan-masala manufacturers cannot avail the GST composition scheme.
  • Industries or business units dealing with inter-state supplies.
  • Industries which are registered as an individual taxable person.
  • Non-resident individuals and functionaries who are taxable.
  • Businesses that supply goods and commodities through the help of e-commerce operatives.

Conditions                 

There are some stipulated criteria for availing the GST composition scheme. Any commercial or business unit that wants to apply for the GST composition scheme must satisfy the following set of norms and go through the approval process. The criteria are:-

  • Business units cannot deal with GST exempted goods and services.
  • Standard GST charges to apply for dealings under the inverse charge apparatus.
  • Business houses have to indicate and mention ‘Composition Taxable Person’ on each bill of supply (statement issued by the composite merchant).
  • Can offer services to the degree of 10% of income or Rs 5 lakh, for manufacturer or dealer.
  • All verticals listed under the same PAN must verify gst number  and apply for this GST composition scheme.
  • GST rates applicable to a composition dealer.

However, it should be noted that the GST rates may vary from composition to non-composition business entity. Here is the chart:

Types of Business CGST SGST TOTAL
Traders & Manufacturers 0.5 % 0.5% 1.0%
Restaurants (Without alcohol) 2.5% 2.5% 5.0%
Others 3.0% 3.0% 6.0%

How to apply for GST composition scheme? 

To apply for the GST composition scheme, you need to go to GST portal and register your business under the GST composition scheme. You have to file GST CMP 02 form at the start of the financial year, and now you have to exercise it further. It is essential to remember that you will not be able to file the same form in any other time of the financial year.

Merits of the GST Composition Scheme

  • Business entities get more liquidity as they have to pay fewer amounts to the government on GST taxation.
  • Moreover, business houses get more liberty in terms of operation like filing returns, maintaining records, invoices, bill payments and so on. The entire thing can be done online, and therefore it becomes less time-consuming.
  • GST composition scheme also helps businesses with fewer tax liabilities. Start-ups get the most significant advantage of this as well as small and medium taxpayers who can face a shortage of funds and cash at any point of time in running their business.

Therefore GST composition scheme allows the young players in the market to flourish in their small endeavours and thus contribute to the economy as a whole.

Demerits of GST Composition Scheme

  • The main demerit of the GST composition scheme is that a person has a limited territory to run their business dealings and function, as inter-state supplies are prohibited under this scheme.
  • Exempted goods are prohibited under GST composition scheme, and therefore, business houses have to deal with limited products and services.
  • A small business unit which deals with a product like a cashew nut cannot get the benefit of the GST composition scheme.
  • Under this scheme, business entities also cannot avail input tax credit. Input tax credits are those taxes which are paid on individual purchases.
  • Another major demerit of composition scheme under gst  is business cannot opt for e-commerce mechanism for the supply chain management of their products.

Major Update in the wake of COVID-19 pandemic

  • The last date to apply for GST composition scheme for the financial year 2020-21 has been extended till June 30, 2020.
  • The period for filling up the ITC 03 form has also been increased to July 31, 2020.
  • Business units can now opt for the submission of form as CMP 08 for the period of January-March 2020, by July 7, 2020.
  • Time for the GSTR 4 returns for the financial year of 2019-20 has also been extended to July 15, 2020.

Conclusion

Composition scheme is made primarily to assist the low and medium taxpaying business units, MSMEs and start-ups with limited or very less capital to compete in the dynamic economy.

The scheme facilitates the start-ups, MSMEs and low to medium taxpayers to steer clear of all complicated periodical official procedure under the GST Act and choose to release the GST liabilities at a fixed rate. Moreover, a business unit functioning under the composition scheme needs to maintain fewer files and records.

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