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The Goods and Services (GST) Composition Scheme is a simple scheme under the GST regime for taxpayers. It helps small taxpayers save time from the various time-consuming formalities. However, this scheme is for small taxpayers with a turnover of less than Rs. 1 crore. It is beneficial to small suppliers, intrastate local suppliers, etc. It was introduced to safeguard the interests of small businesses.
A taxpayer with turnover below Rs. 1 crore can opt for the scheme. According to the Central Goods and Services (Amendment) Act 2018, from February 1, 2019, a composition dealer can supply services to an extent or 10% of turnover or Rs. 5 lakhs, whichever is higher. On 10th January 2019, the GST Council’s 32nd meeting proposed to increase this limit for service providers too.
The following can’t opt for the Composition Scheme:
If a taxpayer wishes to opt for the composition scheme, GST CMP-02 has to be filed with the government. This can be availed by logging into the GST Portal.
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The rates differ based on Central Goods and Service (CGST), State Goods and Service Tax (SGST) and the type of business.
It is highlighted in the below table:
|Manufacturers and Traders (Goods)||0.5%||0.5%||1%|
|Restaurants not serving alcohol||2.5%||2.5%||5%|
Following are the advantages attached to the scheme:
The taxpayers gain the advantage of lesser compliance to be followed with keeping books or records, etc. The taxpayer can avoid providing separate tax invoices.
Taxpayers get the advantage of reduced Tax Liability.
The taxpayer gets the benefit of reduced tax liability through fixed rates. This increases the level of liquidity for business, which helps maintain better cash flow and sustenance of operations.
Business to Business (B2B) businesses cannot claim a credit of input tax paid from output liability. The one who buys such goods cannot claim the tax credit for tax paid.
Businesses face a restricted reach in geographic terms. This is because the GST Composition scheme does not cover interstate composition.
Taxpayers cannot recover composition tax from buyers as they are not allowed to raise tax invoice.
Composition dealer has to make the payment on the following:
A composition dealer has to file quarterly return GSTR-4 on the 18th of the month at the end of the quarter. Annual return GSTR-9A also has to be filed by 31st December of the following financial year. Composition dealer has to issue Bill of Supply since he cannot issue the credit of tax.
Composition dealer has to pay tax on total sales. The total GST Payable includes:
Tax on supplies
Composition dealers should pay special attention before filing the returns. Taking help from a Chartered Accountant (CA) will be beneficial as it helps to remain cautious after checking all details extensively.