Composition Scheme under GST

Goods and Services Tax is undoubtedly the most important aspect of Indian economy this year. Launched on July 1, 2017, GST has subsumed 17 taxes under one bracket to simplify the taxation system in the country.

Now, a new tax regime naturally brings in a new set of compliance to be followed by traders and manufacturers. But although big organizations are backed by needed expertise & resources to easily sign up with the new compliance procedures- yet it’s not exactly the case with the SMEs and startups. Small businesses come with limited turnover and will seemingly face difficulties in keeping up with the compliance procedures of the latest taxation system. In that light, the Section 10 of GST law has introduced the revolutionary Composition Scheme.

What is GST Composition Scheme?

GST Composition Scheme has been introduced to reduce the compliance burden for the small businesses in India. Those who will enroll into the particular scheme will pay taxes at minimum rate on the basis of his/her business turnover. Such a system assures greater compliance ease without the load of maintaining elaborate tax records.

Who is eligible for GST Composition Scheme?

A taxpayer would be eligible for GST Composition Scheme if his aggregate turnover is limited to Rs. 75*( RS. 50 lakhs for notifed states) lakhs in one Financial Year. However, a dealer enrolling into Composition Scheme is not allowed to take Input Tax Credit.

Benefits of GST Composition Scheme for traders and manufacturers

Less compliance burden

A normal taxpayer is required to file at least 37 returns a year under GST- 3 returns every month & 1 annual return. If he fails to comply, he would be subjected to penalty. But the Composition Scheme eliminates the need of so many returns and replaces the system by just 4 (quarterly)+ 1 annual return in form 9A  returns a year. RETURN IN FORM GSTR-4

1^st quarter- July 18

2^nd quarter- 2^nd October  IT IS 18^TH OCTOBER

3^rd quarter- January 18

4^th quarter- April 18.

Lower tax liability

Traders and manufacturers who will enroll into Composite Scheme will also benefit from a nominal tax rate. It would be-

• 1 (1cgst+1sgst = 2)percent for manufacturers
• 5 (2.5+2.5 =5)percent for restaurants
• 5 (0.5+0.5 = 1)percent for the other suppliers under the Composition Scheme

Let’s discuss the situation with an example:

Say we have two taxpayers- Mr. A (normal taxpayer) and Mr. B (taxpayer under Composition Scheme). Both of them have incurred a total sale value of Rs. 118000. Now, when it comes to Net GST liability, Mr. A would have to pay Rs. 6300 while Mr. B would pay a far lesser Rs. 2314.

Greater liquidity

Greater fund availability is another major benefit of enrolling into the GST Composition Scheme. Unlike those under Composition Scheme, a regular taxpayer is allowed to take Input tax Credit. But he will pay the output tax at standard rate & can only avail the Input credit when his supplier files his return. This means a huge sum of his whole working capital would stay blocked for as long as his supplier doesn’t file his return.

However, with GST Composition Scheme, the dealer is not required to wait for his/her supplier filing the return since he can’t take the input credit. (IN COMPOSITION SCHEME NO INPUT CREDIT CAN BE AVAILED) It in turn assures him free access to his working capital any time. Moreover, he would just have to pay the tax at nominal rate which means greater savings for him compared to a normal taxpayer.

If a trader or manufacturer is eligible for the Composition Scheme, he should register for the enrolment before March 31, 2018.