GST Composition Scheme

Imagine less paperwork and a break on taxes, sounds like a relief, right? Well, that's exactly what the GST composition plan offers, especially for the little guys in the business world. It's like choosing the express lane; instead of being bogged down with endless forms, you just zip through with one yearly return (GSTR 9) and a quarterly check-in (GSTR 4). Normally, it's a whirlwind of quarterly paperwork, but this plan cuts through the clutter. For small business owners, it's a game-changer, freeing up precious time to focus on what really matters - growing their business, not drowning in tax work. Now, let's dive deeper into how this plan can be a boon for small enterprises

What are the rules of the GST composition scheme?

According to the GST Act, manufacturing businesses, service businesses, and traders can register under the GST composition scheme. However, certain categories of businesses and individuals are not eligible for this scheme, as detailed below.

1. Any person or company who supplies products via an operator of an online shopping portal and who is responsible for collecting taxes at the source
2. Taxable individuals who are not residents or transients 
3. Suppliers of ice cream or other edible ice, either with or without chocolate added
4. Manufacturers of tobacco products and their substitutes, as well as pan masala
5. Individuals or business owners who purchased goods from unregistered service providers
6. Suppliers who supply items that are GST Act-exempt providers
7. Suppliers, those who offer products and services
 

Eligibility to opt for the GST composition scheme

The composition plan under the GST is available to individuals who sell goods and have an annual turnover of up to  ₹1.5 crore (₹75 lakh for special category States) in a financial year. According to Chhabria (CA&Director, Indirect Tax, Nexdigm, a business and professional Services Company), the turnover threshold limit for service providers (apart from restaurants) is set at ₹50 lakh. The ₹1.5 crore turnover requirement applies to eateries.

Ramesh, for instance, has a crafts shop in Gwalior. He anticipates making about ₹55 lakh in revenue this fiscal year. Ramesh's sales are anticipated to be less than ₹1.5 crore, hence he can choose the composition plan under GST for this fiscal year.

A company must submit an intimation for withdrawal from the plan if its yearly turnover exceeds the threshold rate or if it doesn't meet any of the requirements for the composition scheme. The appropriate official must also authorize this withdrawal request. If accepted, only standard GST regulations will apply when selling goods and services.

Eligible Individuals:
1.    Merchants operating shops
2.    Owners of small-scale manufacturing enterprises
3.    Operators of foodservice establishments
4.    Service sector enterprises
5.    Truck operators
6.    Proprietors of repair shops
7.    Operators of machinery
8.    Artisans
9.    Vendors of fruits and vegetables
 

Which features does the GST composition scheme have?

The main features of the Goods and Services Tax composition GST scheme and composition levy include the following
1. Tax rates are between 1% and 5% lower than the standard GST rates.
2. Tax obligation related to the registered entity's turnover for the relevant fiscal year
3. The applicable composition levy rate varies based on the kind of company.
4. File quarterly returns under the composition plan rather than monthly returns under the standard GST scheme.
5. All enterprises that are registered under a single PAN but have various locations must register under a composition scheme. If not, every firm must choose not to participate.
6. Registration entities for composition schemes are required to raise bills of supply rather than tax invoices.
7. If transactions are conducted using the reverse charge method, the standard GST rate will be applicable.
8. The composite dealer is not eligible for input tax credit.
 

What are the limits of the GST composition scheme?

The GST composition scheme limit varies based on the nature of the business you own, particularly with regard to composite GST

For manufacturers and traders: 
●    In the current fiscal year, your turnover as a recently registered firm cannot be above ₹1.5 crore. If you are already registered, the preceding financial year's turnover cannot have exceeded ₹1.5 crore.

For eateries that do not serve alcohol: 
●    The aforementioned guidelines also apply here.

For service providers: 
●    You should not have more than ₹50 lakh in revenue for the current fiscal year as a newly registered firm. If you are already registered, the preceding financial year's turnover cannot have exceeded ₹50 lakh.

Furthermore, in the states that fall under the special category, the policy caps the  ₹1.5 crore threshold at ₹75 lakh for composite GST. Let's say that throughout a fiscal year, your turnover surpasses the designated composition scheme cap. In order to adhere to the regulations of the GST composition system, you will need to switch to the standard method of paying GST.
 

Conditions for availing Composition Scheme

To be eligible for this plan, a person has to fulfill the following requirements under the composite scheme of GST. An individual taxpayer

1. Input Tax Credit (ITC) cannot be claimed.
2. Is unable to offer items like alcohol that are exempt from GST taxes.
3. Transactions using the Reverse Charge (RC) system are subject to tax at standard rates.
4. Needs to register every company segment under a single PAN, or choose to withdraw from the program.
5. "Composition Taxable Person" must be mentioned on all generated bills and displayed at his place of business.
6. Services up to 10% of turnover or ₹5 Lakhs whichever is higher, may also be provided by a manufacturer or dealer.

Eligibility for the composite scheme of GST requires compliance with specific criteria, including refraining from claiming Input Tax Credit
 

What returns does the composition dealer have to file?

Tax must be paid by a dealer by the 18th of the month after the conclusion of each quarter, using a quarterly statement (CMP-08). Each fiscal year, a GSTR-4 return must also be submitted by April 30th in order to be included in the GST composition system.

What are the advantages of Composition Scheme?

1. Companies benefit from having less time spent on compliance-related chores such as filing taxes, keeping books and records, and more, and more time to concentrate on their core business operations.

2. Small firms will benefit greatly from less tax obligations. The majority of small and medium-sized enterprises are exempt from taxes if their yearly revenue is less than ₹15 Lakhs This makes it possible for small and medium-sized enterprises to succeed in the market.

3. Taxpayers benefit from increased liquidity since there are lower applicable tax rates, which means less GST needs to be paid to the government. 
 

What are the Disadvantages of Composition Scheme?

Cons: The composition method has drawbacks, like anything else in life.

1. Entrepreneurs must operate within a state in order to register under the program. This prevents a company from expanding its activities' region.
2. Cannot be delivered are goods that are exempt from GST. The Composition Scheme, for instance, is not available to sugarcane merchants since their product is GST-exempt.
3. No way to submit an ITC claim.
 

Conclusion

In summary, companies benefit from the GST Composition Scheme's simplification of tax procedures. It facilitates expansion, lessens tax obligations, and decreases bureaucracy. Those who qualify benefit from simpler compliance and lower tax requirements. There are, however, limits, such geographical limitations and limitations on exempt products. Still, it provides a lot of advantages for small businesses.