Composition scheme- A way to simplify 'self-assessed' GST return

Goods and Services Tax (GST)
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April 29, 2019

Composition scheme is an alternative, simple & hassle free compliance scheme for small taxpayers with minimal procedures. Under this scheme, a taxpayer would be required to pay tax on the turnover based on prescribed percentage as the tax rate is comparatively low than those prescribed for normal taxpayers. The threshold limit of composition scheme extended from INR 1 crore to INR 1.5 crore which shall also include 10% provision of normal taxpayer annual turnover within the composition scheme if in case the given 10% is provided as the service. The illuminating feature of this scheme is that the business or person who has opted to pay tax under this scheme can pay tax at a flat % of turnovers every quarter, instead of paying tax at normal rate every month.

So far business that opted for composition scheme under GST (Goods and Service Tax) had to file tax returns every quarter in GSTR-4 which is a layout of seven pages.

Who can opt for Composition scheme?

Small traders and manufacturers having turnover of INR 1.5 crore paying 1% GST
Service providers and suppliers of both goods and services with a turnover of INR 50 lakh paying 6% GST.

Who cannot opt for Composition scheme?

Services supplier other than restaurant related services
Ice cream, pan masala, or tobacco manufacturers

inter-state supplies individuals
A non-resident taxable person or a casual taxable person
Businesses supplying goods through an e-commerce operator

For not opting composition scheme, businesses have to file GST returns every month and also have to pay taxes as per the GST slabs which are a 4-tier GST- 5, 12, 18 and 28 per cent decided for the goods and services they deal in. However, businesses under GST composition scheme will be obstructed from generating e-way bill if they fail in filing tax returns for two consecutive filing periods, i.e. 6 months.

Merits of Composition scheme:
Below mentioned are the advantages of registration under composition scheme:

Limited tax liability
Least involvement of compliances
High liquidity as taxes are at a lower cost

Demerits of Composition scheme:
Various disadvantages are mentioned below for registration under composition scheme:

A dealer is barred from carrying out inter-state transactions which results in limited territory of business.
Composition dealers will have no input tax credit
E-commerce supply portal cannot be taken in operation to supply exempt goods or goods.

If a composition scheme taxpayer is not furnishing the returns for two consecutive tax periods and a regular taxpayer who has not filed returns for a consecutive period of two months would not be allowed to generate e-way bill.

Thus, the Goods and Services Tax Network (GSTN) has the IT system so that businesses which have not filed tax returns for the stipulated period would be barred from generating e-way bills. It would act as an incentive for small and upcoming businesses to accept composition scheme without any fear of compliance resulting in relieving taxpayers from the burden of filing a detailed and hulking returns.

If you are looking to keep yourself updated about the upcoming compliances or requires assistance in filing of GST returns, GST assessments and GST audits, our team of experts can assist you in complying with the GST regime.

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