Composite Scheme Under GST Act

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The GST composition scheme simplifies GST formalities for taxpayers whose turnover does not exceed the ₹1.5 Crores mark. These taxpayers need only pay GST at a fixed rate, and so, small businesses benefit the most with the composition scheme under GST.  Moreover, the GST search tool makes it easy to know if entities have opted in for the scheme. All you need is the GSTIN information, and you can verify the details online.

The composition scheme has numerous features that registered taxpayers need to be aware of. These features include:

  • Reduced tax liability as the tax rates of the composition scheme are lower than that of regular GST. Generally, the tax applicable under the composition scheme is 1% of annual turnover.
  • The tax rates in the composition scheme vary based on the type of business. However, it ranges between 1% – 5%.
  • Registered taxpayers need to file one quarterly return and not multiple returns for one quarter.
  • Taxpayers registered under the composite have to generate a bill of supply and not the tax invoice.
  • If the taxpayer has multiple businesses under one PAN, they will have to choose the composite scheme for all businesses or opt out completely.
  • Only certain taxpayers can opt for the composite scheme after meeting the threshold limit. These include manufacturers of goods, dealers and restaurant owners who do not serve alcohol.
  • When transactions are made under the reverse charge mechanism, the dealer will have to pay tax as per the normal GST rate.

The GST authorities permit a range of manufacturers, service businesses and traders to register under GST composition scheme. However, the following parties are excluded:

  • Non-resident or casual taxable persons
  • Businesses that purchase goods from unregistered suppliers or manufacturers
  • Supplies that undertake the supply of services and goods
  • Supplies that undertake the supply of goods that are exempted from the GST Act
  • Manufacturers that produce tobacco, pan masala and other such products
  • Manufacturers of edible ice including, ice cream
  • Businesses that sell through e-commerce websites that collect tax at source

The GST composition scheme limit varies depending on the sector.

  • For service providers, the turnover limit is Rs 50 Lakhs for a financial year
  • For manufactures, traders, and restaurants not serving alcohol, the limit is Rs 1.5 Crores for any financial year if the taxpayer is newly registered
  • For existing registered entities mentioned in the above point, the limit is Rs 1.5 Crores for the previous fiscal year

It is important to remember that if your turnover exceeds the limits stipulated above, you will have to shift to the regular GST scheme and can no longer enjoy the benefits of composite scheme.

A business owner can opt for the GST composition scheme as long as the annual turnover falls within the specified limit. You can opt for the scheme is you are: Small manufacturing unit ,Shopkeepers, Food service unit, Truck operator, Service sector, unit Machine operator, Repair store, Artisan, Fruit and vegetable vendors and more

Under the GST composition scheme, the tax rate is applicable on the category/ type of registered entity. For example, with regard to the composition scheme, under GST for services, the rate is different for specific entities. Currently, the applicable rates are:

Category/ type of registered taxpayerCGSTSGSTTotal GST
Manufacturers and traders of goods1.0%1.0%2%
Restaurants (not serving alcohol)2.5%2.5%5%
Traders and other eligible entities0.5%0.5%1.0%

A crucial point to remember if one have opted for the composite GST scheme is that one cannot raise a tax invoice. This means that he cannot charge tax and have to pay it from your pocket.  Instead, he will have to raise a bill of supply, which clearly states that he is registered under the composition GST scheme and cannot collect taxes.

The composition scheme carries the following advantages and disadvantages:

AdvantagesDisadvantages
Lower compliance limitsLimitation on business territory
Lower tax liabilityNon availability of Input Tax Credit
Lower tax rate brings higher liquidityNon-taxable goods cannot be submitted through an e-commerce portal

Taxpayers who wish to opt for the composition scheme under GST for fiscal year 2023-2024 can do so by filling out the required form on the portal by the end of March 2023. As per Budget 2023, Sec 10 of CGST Act was amended to permit taxpayers who supply goods through e-commerce to register under the composite scheme. The same is yet to be notified by the Central Board of Indirect Taxes and Customs (CBIC)

Know more about : Online Registration of GST

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