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  • Category: Government

    What is composition scheme in GST?

    Want to know about the composition scheme in GST? Searching for information on the web? Here, on this page find answers from experts.

    We all know that the implementation of Goods and Services Tax will commence from 1st July, 2017. In addition to Goods and Services Tax, the Government of India also brought a Composition Scheme attached to it. What is the composition scheme under GST and who is eligible for composition scheme? Is there any financial benefit if someone opts for composition scheme under GST? If not, what are the other benefits of composite scheme under GST?
  • Answers

    3 Answers found.
  • Composition scheme is a convenience and benefit given to tax payers with a lower threshold of turnover simplifying procedures. Such tax payers need not go through complicated tax workings, need to pay only a certain percentage of their turnover as tax and need to submit returns only quarterly instead of every month. The tax rate is very low- 1% for manufacturer, 2.5% for restaurant sector and 0.5% for other suppliers . They have simple procedures of book-keeping also.
    There are certain eligibility conditions like:
    Turnover in the previous FY was less than fifty lakhs(recommended to seventy five lakhs), must be a registered tax payer, goods must have been purchased from inside the state(ie. only intra-state supplies and not inter state supplies) , must have been purchased from registered dealer only. Service providers, interstate suppliers, supplying through e commerce operators, are not eligible for composition scheme. The composition scheme tax payer does not have the option to avail input tax credit under GST paid to his suppliers.

  • There are many small business people we are not able to cope with the tedious procedures , applications and formats for submitting the returns and pay tax. So they always try to see the shortcuts and try to avoid paying tax. To make their life easy and see that they will pay tax , this composition Scheme in GST is introduced. It is applicable to all the businesses where the previous year turn over is less than 50 lakhs. There is a chance they may extend it to 75 lakhs.
    They have to submit quarterly returns. Inter state transactions are not allowed in this scheme. Those people who want avail have to submit their application mentioning about their intention. They should be a registered tax payers. If there are multiple business segments under one PAN number, they should mention all the businesses. They can't avail credit of in put tax under this scheme

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  • There are many people whose business is in the startup phase or turnover is low. While bringing in GST regime Govt has given thought to the problems and inconveniences of start ups, small companies and small to medium enterprises (SME) and devised a composition scheme for them.

    In this scheme only they are elligible who are doing business in the area of goods and there turnover is less than 75 lakhs in a year. Service providers except restaurant sector are not given this route of taxation.

    In this scheme these business entities will be paying tax not more than 1% for manufacturers, 2.5% for restaurants and 0.5 for other miscellaneous supply of items of there annual turnover.

    Interesting thing about this composition tax is that the business entity has to pay this and they are not allowed to take it from the buyer and hence can not issue a tax invoice also.

    Another thing is that a dealer or shopkeeper under this scheme is also exempted from keeping detailed records which is otherwise required under GST.

    This scheme is only allowed for business entities confining their business within state. If a dealer wants to do inter state business this facility is not there.

    Whenever the business person wants he can switch from composition mode to normal GST mode.

    Govt has very clearly told that if a business person misuses composition scheme by intentionally registering wrongly under it he will be penalised heavily.

    Knowledge is power.

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