The Goods and Services Tax (GST) composition scheme is a simplified taxation structure designed to ease the compliance burden for small businesses in India. This scheme is available to businesses with an annual aggregate turnover of up to ₹1.5 crore (₹75 lakh for special category states and Union Territories).
Eligibility
To be eligible for the GST composition scheme, a business must meet the following criteria:
• Annual aggregate turnover of up to ₹1.5 crore (₹75 lakh for special category states and Union Territories)
• Not engaged in the manufacture of ice cream, pan masala, or tobacco
• Not engaged in the supply of services, except restaurant services (for which the turnover limit is ₹50 lakh)
• Not engaged in making inter-state supplies
• Not engaged in supplying goods or services through an electronic commerce operator (ECO) that collects tax at source (TCS)
Benefits: The GST composition scheme offers a number of benefits to small businesses, including:
• Reduced tax rates: Composition dealers are required to pay GST at a fixed rate of 1% (manufacturers and traders), 5% (restaurants), or 6% (service providers), depending on the nature of their business. These rates are significantly lower than the normal GST rates, which can range from 0% to 28%.
• Simplified compliance: Composition dealers are required to file only two GST returns each year - Form GSTR-4 (annual return) and Form GST CMP-08 (quarterly return). This is a significant reduction in the compliance burden compared to regular GST dealers, who are required to file monthly returns.
Restrictions: The GST composition scheme also comes with certain restrictions, including:
• Composition dealers cannot collect GST from their customers.
• Composition dealers cannot avail input tax credit (ITC) on their purchases.
• Composition dealers cannot make inter-state supplies.
• Composition dealers cannot supply non-taxable goods or services.
• Composition dealers cannot supply goods or services through an ECO that collects TCS.
How to opt for the GST composition scheme
• Businesses can opt for the composition scheme at the time of registering for GST or within 30 days of the commencement of their financial year.
• To opt for the scheme, businesses need to file Form GST CMP-01 with the GST authorities.
Issuing tax invoice
Composition dealers cannot issue a tax invoice. Instead, they must issue a bill of supply, which must explicitly state that the business is a composition taxable person and is not eligible to collect GST on supplies.
Who cannot opt for the GST composition scheme?
The following categories of taxpayers are ineligible for the GST composition scheme:
• Taxpayers with aggregate turnovers exceeding the prescribed threshold
• Taxpayers engaged in making supplies not leviable to GST, inter-state outward supplies, or supplies through electronic commerce operators required to collect tax at source
• Casual taxable persons or non-resident taxable persons
• Manufacturers and traders of ice cream, pan masala, or tobacco
Choosing Based on Primary Business Nature
For businesses engaged in both manufacturing and trading, it’s important to note that the composition scheme applies at the PAN level. This means that if a registered person is involved in manufacturing ice cream, they are specifically restricted from availing the composition benefit, even if they have a trading business alongside. The eligibility is determined based on the primary nature of the business.
Conclusion
The GST composition scheme is a valuable option for small businesses in India. It offers simplified compliance and reduced tax rates, which can help businesses to save time and money. However, businesses should carefully consider their eligibility and the restrictions associated with the scheme before opting for it.
Additional tips:
• Businesses should consider their primary business nature when determining whether they are eligible for the composition scheme. For example, if a business is engaged in both manufacturing and trading, but the primary nature of the business is manufacturing, the business will not be eligible for the composition scheme, even if the trading turnover is below the threshold.
• Businesses should consult with a tax professional to ensure that they understand the eligibility criteria and restrictions associated with the GST composition scheme before opting for it.
Disclaimer: This blog post is for informational purposes only and should not be construed as financial/legal advice. Please consult with a your financial/legal advisor before making any business decisions.
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Other reference Source from: https://www.cnbctv18.com/finance/gst-composition-scheme-eligibility-how-to-opt-steps-tax-invoice-restrictions-18137931.htm
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