Composition Scheme

With the July 1st deadline looming, it has become crucial for entrepreneurs and tax payers to understand every aspect of the Goods and Services Tax. The Council members and the makers of this new law have ensured that GST is corruption-proof. Complete digitalisation of the documentation means removal of the human element. That was the first step to ensure that there are no under-the-table activities.

The next agenda on our brainy Council’s list was to bring more assessees under the tax net. To achieve this, they set the limit for mandatory registrations and a business has to get registered under GST to avail the benefits that come with it. As per GST rules, any company, organisation or business venture located in the North Eastern states, which has an aggregate turnover of ₹10 lakh or more would have to be obtain registration under GST. For the rest of India, the lower limit for obtaining registration has been decided at ₹20 lakhs. There will not be any differentiation between goods manufacturer or service providers.

The registrations, return filings, and invoice matching is going to be automated. It is therefore essential to upgrade the existing IT infrastructure to accommodate the tax reform. While the multinational companies will be financially furnished to comply with the same, the small and medium enterprises may not have the required expertise to become GST compliant. To aid this situation, GST Edge has built a cloud based, consolidated invoicing and return filing platform. During each financial year, a minimum thirty-seven returns would be required from each registered tax payer. It seems small and medium enterprises will have to employ additional resources to handle the cycle. Also, the employees would have to be educated and trained about the changes in accounting, eventually bringing up compliance costs.

Keeping this in mind, the government has introduced Composition scheme under GST. It is merely an extension to the current scheme under the VAT law. Any business which has a turnover less than ₹75 lakhs (against ₹50 lakhs earlier) can opt for this scheme. However, on any given day if the turnover crosses this limit, then the business becomes ineligible for the composition scheme and would have to obtain registration under the regular scheme. Apart from the turnover limit, there are certain conditions that have to be satisfied before opting for composition scheme which are:

  1. Assessees dealing in supply of goods can opt for this scheme. Service providers cannot register under the composition scheme. Restaurant service providers are excluded.

  2. Businesses having only intra state supply of goods are eligible.

  3. E-Commerce operators have been barred from registering under this scheme.

  4. Dealers who collect Tax at source u/s 56.

  5. Dealers cannot collect composition tax from recipient of supplies.

One thing that should be kept in mind while opting for composition scheme is that the scheme will be levied on all business verticals with the same PAN. For example, if Mr. K has three business verticals registered separately, the composition scheme will be available to all three verticals. Furthermore, a taxpayer registered under the composition scheme need not maintain detailed records like a normal taxpayer will have to. Taxpayers under the composite scheme will pay tax at concessional rates i.e. 2% for manufacturer, 5% for restaurants, and 1% for other suppliers. And, for the cherry on the cake (bound to irk the regular tax payer), only a quarterly return will be uploaded under GSTR-4 as opposed to monthly three returns. The returns have to be filed on the 18th of the next month after the quarter end as well as an annual return in Form GSTR-9A.

On the down side, Composition scheme dealers cannot claim Input Tax Credit of GST paid to their supplier. And since the dealer is not allowed to charge tax from his buyer, he has to pay out of his own pocket thereby increasing the burden on assessee to pay the tax. Any taxes payable under Reverse Charge Mechanism will not be covered under the scheme and will be liable to be paid as a normal tax payer. However, if the tax administration has reason to believe that a composite dealer is taking advantage by wrongly availing the benefits of the composition scheme, then such a person shall be liable to pay all the taxes which he would have paid under the normal scheme. He will also be liable to pay a penalty equivalent to the amount of tax payable.

That being the case, it would be strongly recommended that one reads the terms and conditions thoroughly before opting for the composition scheme.




1) Times of India

2) Hindustan Times

3) Financial Express

4) Indian Express