Are you a small business owner finding it overwhelmingly challenging to cope with GST? The new tax regime has kept everyone on their toes since July. There are multiple requirements of GST that one has to comply with.

The Government understood that it might not be everyone’s cup of tea to handle the demands of this tax system due to the lack of resources or expertise and thus launched the Composition Scheme.

The Composition Scheme allows small taxpayers to do away with the compliances of GST conveniently. They can pay the tax as a fixed percentage of their business turnover.

Who can avail this scheme?

  1.  A business with an annual turnover of less than Rs. 1.5 Crore and less than Rs. 75 Lakh for North Eastern states.
    *Annual turnover is calculated taking all the businesses into considerations that are registered with the same PAN.
  2. Those indulging in theintra-state supply of goods or service of only the restaurant sector (not serving alcohol).

Who cannot avail this scheme?

  1. Businesseswho are dealing with supplies exempted from GST.
  2. Supplier of goods through an e-commerce portal.
  3. Supplier of services in other sectors apart from the restaurant sector.
  4. Casual taxpayer or non-resident taxpayer
  5. Supplier of ice cream, pan masala, or tobacco (and its substitutes)

GST rates under the scheme

A business opting for this scheme cannot charge GST in their invoice and has to pay out of its pocket. The end consumer of supplies is not required to pay the tax to the supplier.

Type of Business CGST SGST Total GST
Manufacturer and Trader of goods 0.5% 0.5% 1%
Restaurants (without alcohol) 2.5% 2.5% 5%

Salient features of the scheme

• Eligibility – The scheme can only be availed by taxpayers who meet the criteria of thetype of business, thelocation of supply and annual turnover.

• Tax Rate – The taxpayer cannot pay taxes less than 1% of the turnover during the financial year.

• Input Tax Credit – Those who opt for this scheme are not eligible for Input Tax Credit.

• Voluntary Application – Businesses may voluntarily register under this scheme if they meet the eligibility criteria. However, if their turnover crosses the limit as per the scheme, they will no longer be eligible for it.

• GST Return Filing –The taxpayer is required to file GSTR-4 every quarter.

• Bill of Supply – The taxpayer needs to present bills of supply to the tax authorities instead of tax invoices.

• Penalty – If the taxpayer is found not eligible and still operating under the scheme, tax authorities have the power to impose a penalty almost equal to the tax amount apart from the tax liability.

When and how to opt for the scheme?

To opt for the scheme, you may intimate the authorities at the beginning of the financial year by filingForm GST CMP-01 or GST CMP-02 with the Government.

Thus, if you are a small business or a new taxpayer having extreme difficulties in dealing with the requirements of GST, you may voluntarily opt for the Composition scheme and avoid a majority of the compliances and enjoy lower tax rates and hence, lower tax liabilities.

However, the downside of this scheme is that you will not be eligible for Input Tax Credit and your business would be limited to intra-state deals.