GST is one of the most revolutionary Acts in the history of Indian laws. Along with the uniformity in the indirect taxation laws, it has brought a lot of new things like the GST online portal and the online GST website. Besides that, GST has taken the utmost care in relieving the small businesses of the excessive tax burden and making things easier for them. And for this initiative, a composition scheme under GST has been introduced by the government.
What is the Composition Scheme?
This is a scheme under the GST law to make the compliances easier for the taxpayers. The persons who are eligible to opt for this scheme are relieved from many compliances under the GST Act. They do not have to take the registration under the Act. They also do not have to file the comprehensive GSTR 9 return or even the monthly return. They can simply do away with a very simple yearly return. Even the tax they have to pay is lower.
So, the scheme is highly beneficial for small businesses in helping them reduce their tax burden as well as other operational costs.
Who is eligible for Composition Scheme?
The scheme is exclusively for small businesses. The question here is, what businesses will be considered as small businesses? The Act has defined that any business that has a turnover of less than Rupees One Crore shall be a small business, and it can opt for the composition scheme under the GST Act. However, the limit is lesser for the states in the north-eastern parts of the country and Himachal Pradesh. In these states, the businesses with a turnover of less than Rupees 75lakhs shall become eligible to opt for the scheme.
In the later course of time, there was an amendment in the Act. This amendment included even the small service providers in the eligibility criteria for the scheme. As per this amendment, the service providers who provide services of up to Rupees Fifty Lakhs can become a part of the composition scheme.
Moreover, small businesses who are already a part of the composition scheme can provide services to the extent of higher of Rupees Five Lakhs or Ten percent of their turnover.
Who is Ineligible for Composition Scheme?
The scheme is for small businesses and small service providers. Yet every category or type of such businesses or service providers cannot opt for it. Here are the businesses that cannot take to composition scheme even if they are under the purview of the definition of small businesses or small service providers.
- A business engaged in the manufacturing of pan masala, tobacco, or icecream.
- A business or service provider that is engaged in inter-state supply.
- A business or service provider that is an e-commerce operator.
- A business or service provider that is a non-resident Indian or a casual taxpayer.
Conditions You Must Fulfill to Opt for the Scheme
Just coming under the eligibility criteria is not a sure way of becoming registered under the composition scheme. Even after eligibility, you need to fulfill certain conditions and be okay with certain clauses. Here are the conditions and clauses regarding the composition scheme.
- A composition dealer can neither supply exempted good not can he claim an input tax credit on his transactions.
- If the goods or services supplied come under the purview of the reverse charge mechanism, then the composition rates will not apply. The composition dealer will have to pay the normal rates of tax.
- Every segment of the business of a composition dealer shall be registered together under one collective composition scheme. If that is not the case, the dealer must completely opt out of the scheme.
- A composition dealer has to disclose prominently at every place of his business and on bills his status as composition dealer.
How can a dealer opt for Composition Scheme?
This is extremely simple, a matter of minutes. All the dealer has to do is file the form CMP 2 through the online GST portal. This is more of an intimation on the part of the dealer that he wants to opt for the composition scheme.
Advantages of Composition Scheme
A composition dealer has easier returns to fill and lesser compliances to make. Even the return filing is yearly as opposed to the monthly filing for the normal taxpayers. So, the composition dealer is highly relieved of the compliance burden. This also reduces his operational costs and saves a lot of time, effort, and energy.
The tax rates for the composition dealers are much less than the rates for the normal taxpayers. They have to pay tax only at a nominal fixed percentage of their turnover. This significantly helps reduce the burden of tax on these small businesses. With a lesser tax burden, they can grow themselves and expand their business. This will also help the economy to grow.
Disadvantages of Composition Scheme
Although the small businesses and service providers make significant benefits from the composition scheme, they still face a major disadvantage in the form of inability to avail input tax credit, which definitely is a huge amount.
Also, the normal tax rates applicable in the case of transaction under the reverse charge mechanism can come as a loss to the composition dealers.
The composition scheme under GST is a great one. It has helped small businesses a long way in expanding their businesses. That way, they have also been able to serve the Indian economy in helping it grow. A large share of the businesses of small dealers contributes to the GDP of India. Although there are some disadvantages like the inability to claim an input tax credit, the advantages are far more and better too. So, every dealer who is a small business must opt for the composition scheme and enjoy its advantages. Also, the dealers must keep checking the GST website to stay updated about all the changes in the Act.