GST composition scheme under Goods and Services Tax (GST) is a relieved tax structure addressing taxpayers who own small businesses.
Through this scheme, taxpayers can get rid of their tedious and time-consuming formalities involved in GST by paying the tax at a fixed rate basis for their turnover.
Only businesses with an annual turnover of less than Rs.1 crore can opt for the composition scheme under GST.
However, in the GST Council’s 23rd meeting in Guwahati recently, it has been decided that the threshold turnover under this scheme would be increased, with the new threshold reaching Rs.1.5 crore.
The GST composition scheme relaxes tax compliances and payments for eligible companies, thus enhancing their liquidity factor.
So, this scheme could eventually help deal with the different challenges a small business owner faces. Yet, specific business owners will not be eligible to avail this scheme.
They include businesses that –
- Supply services other than restaurant-related services.
- Supply goods through Electronic Commerce operators.
- Manufacture or supply pan masala, tobacco or ice cream.
- Make an inter-state supply of goods.
Knowing about GST and its intricacies in detail are essential for business owners. Paying GST in time and maintaining proper documents related to tax payments is equally important. Business owners maintaining these records are a step ahead in availing funds when their company needs it.
For instance, financial institutions before disbursing a business loan verify your eligibility like business performance based on the documents you submit. As such, GST returns filed can serve the purpose well, thus improving one’s chances of business loan approval.
These advances are readily available today against minimum eligibility and documents. Competitive interest rates from lenders like Bajaj Finserv make them affordable too.
They also bring exclusive pre-approved offers on loans, which helps customers stay one step closer to early approval. It further makes the entire process of availing loans simpler and hassle-free.
As for the GST composition scheme, businesses must fulfill a few conditions and follow listed down rules to avail of the composition scheme.
Rules to be followed for availing GST’s composition scheme
Given below are the GST composition scheme rules which taxpayers need to follow-
- No beneficiary under this scheme can claim Input Tax Credit.
- The dealer cannot supply goods which are exempted from GST.
- Under the Reverse Charge mechanism, a business has to pay tax at regular rates in the case of specified transactions.
- The taxpayer is required to mention ‘composition taxable person’ on every signboard or notice displayed in the business place. He/she also has to mention the same on every bill issued in the business’s name.
- If an individual owns different segments of business, such as groceries, textiles, etc. under a single PAN, he/she has to register all the businesses under the GST composition scheme collectively. In the case of failure to meet the requirement, he/she has to opt-out of the scheme.
- As regulated by the CGST Amendment Act of 2018, a trader or manufacturer can provide services to the extent of 10% of the turnover, or Rs.5 lakh, whichever is higher. The rule has been implemented since 1st February 2019.
Once you have completed the GST registration procedure in India, you can apply it under the composition scheme of eligible.
To opt for this scheme, a taxpayer has to file GST CMP-02 online by visiting the GST portal. It has to be done at the beginning of every financial year.
A business availing the GST composition scheme has to file a quarterly return GSTR-4 by the 18th of the month following every quarter completion. Such a business owner also needs to file an annual return of GSTR-9A by 31st December of the following fiscal year.
GST rates under the composition scheme are fixed at 1% for goods manufacturers and traders, 5% for restaurants not serving alcohol, and 6% for other service providers.