Regular Scheme Under GST: Composition Scheme

Goods and Services Tax Act, which came into effect on 1st July 2017, has now replaced most of the indirect taxes in India, with a single tax.

The GST Law in India is a comprehensive, multi-stage, destination-based tax that is levied on every value addition. The new tax regime brought with itself a whole new set of procedures, which has not been easy to adapt to, initially.

While the big business is capable enough the get the expertise and professional services to cope up with the complexities, the case may not be the same with the smaller ones. To provide for an alternative option to the smaller businesses, the Regular Scheme Under GST- Composition Scheme has been launched.

Also known as Composition Levy in lieu of GST, the GST Composition scheme has been introduced to lower the extra burden of compliance from the small businesses. The project provides for options to such taxpayers to either opt for GST, or they can opt to pay a fixed turnover as fees instead of tax and be relieved of struggling with the complicated procedures of compliances. 

Benefits

 Following benefits are available for the taxpayer registered under the GST Composition scheme:

1. Less compliance While under the GST, the taxpayers have to file for three returns monthly and one annual return, under the Composition Levy in regards of GST scheme, only quarterly returns have to be registered. Thus under GST, taxpayers pay 37 returns while only three under the composition scheme. 

2. Reduced tax liability The tax liability under the composition scheme is usually turning out lesser in comparison to that under the regular GST rates.

Applicable Rates For the manufacturer and traders of goods, 1% of the total turnover has to be paid. For providers of services who are eligible, viz. restaurants not serving alcohol, it is 5% of the total turnover. Other service providers are not qualified to opt for the scheme. 

Eligibility for the scheme Only the following persons can opt for the project: 

1. A person registered under GST.

2. Turnover of such person is below Rs. 1.0 crore, except for North-Eastern states and Himachal Pradesh, where the limit is now Rs. 75 lakh.

Apart from that, the following people have been expressly barred from the scheme:

1. Taxpayer supplying exempt supplies.

2. Supplier of services other than restaurant related services

3. Manufacturers of ice creams, pan masala, or tobacco

4. A casual taxable person or a non-resident taxable person

5. Businesses which supply goods through an e-commerce operator

Registration for the scheme

1. Already registered: If a person is already registered under the earlier law and has been granted provisional registration under the GST, he will have to file FORM GST CMP-01. Subsequently, he is required to file Form GST CMP-03 within 60 days of exercising the option.

2. During registration: For a person who is taking a new registration under GST, needs to file Part B of Form GST REG-01, while filing for GST registration.

Limitations

While the scheme comes with a lot of benefit for the small taxpayers, there are also certain limitations and preconditions, unlike the standard GST, which must be taken into notice before opting:

1. No Input Tax Credit cannot be claimed 

2. Inter-state supply of goods cannot be made

3. GST exempted goods cannot be supplied by the dealer

4. Reverse Charge Mechanism standard rates for transactions must be paid at the standard rates 

5. If a taxable person has multiple segments of businesses under the same PAN, such businesses must be registered under the scheme collectively or opt-out of the scheme. 

6. 'Composition taxable person' has to be mentioned on every notice or signboard displayed prominently at the place of business.

7. Same has to be mentioned on every bill of supply issued by him.

8. Those supplying goods can supply services of worth up to 5 lakhs. 

The Bottom Line

The GST is part of the broader government policies, while it has been a very progressive step, the complexities of the economy do not allow for the uniform application of any given policy. As a solution to the immediate shortcomings of the GST, the composition scheme was introduced in the benefit of the small taxpayers.

While the project has a lot of benefits, and it seems lucrative to opt for it, one must take into consideration all the factors and choose accordingly.