The GST Composition Scheme

To help ease the implementation and the tax compliance procedure for small taxpayers like Small and Medium-sized Enterprises (SMEs), Micro, Small and Medium Enterprises (MSME)s, and small traders, the central government has introduced this Goods and Services Tax (GST) scheme. The GST composition scheme already exists under many state Value Added Tax (VAT) laws; however, it is absent in the central laws like excise and central tax. For the uninitiated, the new scheme can be challenging to understand. This article aims to provide a clearer understanding of the new GST scheme and how it impacts you.

Eligibility of Registered Individual/s:

A registered business opting for the Composition Scheme should not be:

  • Engaged in the supply of services other than the service specified in Clause (b) of Para 6 of Schedule. This implies that service providers cannot avail the benefits of the Composition Scheme. One example can be restaurant service
  • Manufacturers of ice-cream, pan masala or tobacco are not eligible for the scheme
  • Engaged in making any inter-state outward supplies of goods. This implies that the Composition Scheme can only be availed when making intrastate supplies, i.e. within the state supply of goods and services
  • Engaged in making any supply of goods through an E-commerce operator who is required to collect tax at source under Section 52
  • Should not be a manufacturer of such goods as may be notified by the Government on the recommendations of the Council.

Conditions for availing this scheme:

For an individual to avail this scheme the following conditions must be met. A taxpayer:

  • Cannot claim Input Tax Credit (ITC)
  • Cannot supply goods which are not taxable under GST, like alcohol
  • Has to pay tax at normal rates for transactions under Reverse Charge (RC) mechanism
  • Needs to register all segments of businesses under the same PAN collectively or will need to opt out from the scheme
  • Has to mention “Composition Taxable Person” on all bills generated and also display the same at his place of business
  • A manufacturer/trader can also supply services either to the extent of 10% of the turnover or Rs 500,000, whichever is higher.

Who can opt for the Composition Scheme?

A taxpayer whose turnover is below Rs 1,500,000, can opt for this scheme. In case of North-Eastern states and Himachal Pradesh, the turnover limit is Rs 7,500,000. When calculating turnover, all businesses registered with the same PAN should be considered.

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