GST Composition Scheme is for the benefits of the small businesses in India. Composition scheme under GST brings relief to small businesses and saves them from the burden of the compliance provisions. In this blog, we shall discuss what is composition scheme under GST and how it benefits a small business.
Table of Contents
What is the Composition Scheme?
Also Read: GST Registration Process
The implementation of GST (Goods & Service Tax) in India has brought a lot of compliance along with it. Dealing with its compliance parts is not that difficult for big players in the Indian market. However, small businesses find it hard to deal with it.
So, in order to help the small business in India, Government has come up with the GST composition scheme. The main criterion to avail of the composition scheme is the turnover limit. However, the GST composition scheme limit has undergone many amendments. The composition scheme allows small businesses to opt to pay a fixed percentage of their turnover. This scheme under GST is generally applicable to the persons who are supplying goods and services to the end consumers.
Who can opt for the GST Composition Scheme?
Also Read: GST Login: Guide on how to Login GST Portal India
Small businesses with an annual turnover of INR 1 crore can opt for this scheme. However, this composition scheme limit is recommended to increase up to INR 1.5 crores but is yet not notified. Notably, the turnover of the businesses with PAN is added to calculate turnover. Only goods manufacturers, dealers, and restaurants which are not serving alcohol can opt for this scheme. And service providers in India are not eligible for composition scheme in GST.
Persons who cannot opt for Composition Scheme Under GST
Also Read: How to Cancel GST Registration on GST Portal in India?
The following are the persons/businesses who cannot opt for the GST composition scheme:
- A supplier of service (other than a restaurant serving non-alcoholic drinks).
- A supplier of non-taxable goods.
- A Supplier engaged in the inter-state supply of goods.
- A supplier of pan masala, tobacco, and ice cream.
- A supplier supplying goods through an E-commerce operator (who is eligible to collect TCS).
What is the GST Composition Scheme Rate?
Also Read: Reverse Charge Under GST: Comprehensive Guide
The composition scheme rate under GST is as follows:
Composition Scheme Rate Under GST |
|||
Type of Business |
SGST |
CGST |
Total |
| Traders and Manufacturers | 0.5% | 0.5% | 1% |
| Restaurants not serving alcohol | 2.5% | 2.5% | 5% |
What are the Benefits of GST Composition Scheme for Small Businesses?
Also Read: Do we still require Service Tax Registration after GST Implementation?
The advantages of the scheme for small businesses are as follows:
Less Compliance
This is one of the biggest advantages of this GST scheme – it comes with less compliance. In simple words, the taxpayers or business owners who have opted for this scheme have to undergo comparatively less compliance under GST. Even after more than a year of introduction, filing GST returns takes a lot of time and cost of the taxpayer. However, not the same case is with the taxpayer registered under the composition scheme. It takes comparatively less time and cost for the taxpayer to file it.
A taxpayer registered under GST has to file monthly returns in addition to an annual return. And a taxpayer registered with this scheme under GST has to file just 5 returns, 4 quarterly returns (GSTR 4 form) and an annual return (GSTR 9A form). In addition, a taxpayer registered under this scheme is not even required to maintain detailed records.
Lower Tax
This GST scheme registered taxpayers are benefited by low tax rates. The government has specified low tax rates for this scheme registered persons compared to normal GST registered taxpayers.
High Liquidity
As discussed above, opting for this scheme results in fewer tax payments. And this results in less amount of the working capital be blocked in the tax payments which means high liquidity for a business. This can be beneficial for a small business in its expansion and growth.
What happens when a taxpayer opts out of this Scheme?
Also Read: GST Bill: Comprehensive Guide on GST Invoice
When a taxpayer opts out this GST scheme, he will be charged normal tax rates and will have to follow normal GST rules from the day he opted out.
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