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Composition Scheme Under GST

Advantages and Disadvantages of Composition Scheme under GST

Composition Scheme Under GST

For small business owners, the composition scheme under GST was introduced as a relief mechanism so that they could pay lower GST amounts at a fixed rate on their turnover. Moreover, registering themselves in this way also allows them to bypass tedious compliances and eliminates the need for complex paperwork. So, it is essential that a business has a correct view of the composition scheme under GST.

GST Composition Scheme Eligibility

Eligibility for composition scheme is determined by the tax payer's turnover. If a taxpayer had an annual turnover of less than Rs. 1.5 crore in the previous financial year, he is eligible. In the case of Himachal Pradesh and North Eastern states, this limit has been relaxed to Rs. 75 lakhs. Here, it should be noted that the limit will include the turnovers of all businesses registered under the same PAN. Therefore, a PAN holder can either register as a regular dealer or a composition dealer under GST, but not both simultaneously.

Some taxable persons are not eligible for GST composition scheme:

  • Supplier of GST-exempt goods or services

  • Manufacturer of pan masala, ice cream or tobacco

  • Nonresident taxable person

  • Casual taxable person

  • Supplier of goods who avails an e-commerce intermediary

  • Service provider other than a restaurant and related services

To opt for the GST composition scheme, the following conditions must be satisfied:

  • The dealer cannot claim any Input Tax Credit for opting for the GST composition scheme

  • The dealer must not supply goods exempted from GST

  • At the place of business, the words ‘composition taxable person’ must be displayed on every notice or signboard

  • The words ‘composition taxable person’ must be written on every bill of supply issued by the taxpayer

  • For transactions under the Reverse Charge Mechanism, the taxpayer must pay tax at normal rates

  • If the taxpayer has different segments of businesses under the same PAN, all such businesses have to be registered under the scheme collectively or otherwise

According to the CGST (Amendment) Act, 2018, a manufacturer/trader can supply services to an extent of 10\\% of the turnover, or Rs. 5 lakhs, whichever is higher. This amendment went into force from Feb 1, 2019

Advantages of Composition Scheme under GST

Registering as a composite dealer under GST has the following benefits:

  • High liquidity as the business will have to pay less GST and therefore have more funds in ready circulation for investment or operational purposes

  • Lower GST payments as compared to regular dealers. Composite dealers under GST invariably pay lesser amounts

  • Less paperwork as the GST composition scheme eliminates a lot of red tape and paperwork which works well for a small business

Disadvantages of Composition Scheme under GST

Registering as a composite dealer under GST has the following disadvantages:

  • No interstate transaction is allowed

  • Input tax credit cannot be claimed

  • Exempt goods cannot be supplied

  • E-commerce businesses cannot be established

As per the latest notification, the GST department has extended the deadline to April 30th, 2019 for any dealer with a turnover of up to Rs. 50 lakhs who wants to register under the GST composition scheme. The tax rate of 6\\% will be applicable from the date of obtaining the new GST registration.

For more information on the composition scheme under GST, sign up for a free consultation with LegalDocs today!


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