GST: Composition Scheme and More

The introduction of GST (Good & Services Tax) in the Indian economy was a step taken to eradicate all the different forms of Indirect Taxes in exchange for one uniform tax. It was welcomed as a pleasant change that would eventually prove to be highly convenient for all the tax-paying citizens of India. The same rules would apply all across the country, and the practice of levying taxes on every stage of the supply chain would stop as a result.

Since then, it has been three years, and people are now well-versed about the different GST services and their long-term advantages. They have realised that paying one single tax for any good or service is more convenient than paying a host of taxes like services tax, central excise duty, value-added tax and so on.

Further, there are two primary schemes under which GST registration is done. In this article, the focal point will be the Composition Scheme of GST. But before that, here is a quick run-through of what is already known about GST and other significant details related to it.

GST: What is it?

GST or the goods and services tax is an indirect tax which is imposed on the consumption of any kind of good or service. Instead of having to pay a plethora of taxes starting from VAT, SAD, excise duty and so on, the consumers are required only to pay one type of indirect tax, which is then collected by both the central and each state government. They have to file GSTr or GST returns based on the kind of business they run and what scheme they fall under.

There are four types of GSTs: Central Goods and Services Tax, State Goods and Services Tax, Integrated Goods and Services Tax and Union Territory Goods and Services Tax.

i. CGST:

This type of GST is imposed by the Central Government on the movement of goods and services which occur within a state.

ii. SGST:

This tax is levied by the state government of each state which has replaced all other taxes such as entry tax, entertainment tax and sales tax.

iii. IGST:

This tax is only meant to be applied when there is an exchange of goods and services between two states.

iv. UTGST:

This is a GST which is only exclusive to all the Union Territories of the country namely Andaman and Nicobar Islands, Lakshadweep, Daman and Diu, Chandigarh and Dadra and Nagar Haveli. It has the same functions as that of the SGST, but only for these five UTs.

What are the items on which GST cannot be levied?

Items such as alcohol, crude oil, natural gas, diesel, jet fuel and petrol do not come under the category of items on which GST can be applied.

The process of GST filing is an integral part of every registered taxpayer’s annual financial routine. It is a legal document which contains proof of an individual’s purchases, sales, input and output tax throughout a financial year. Once this document is filed, it is then used as a reference by the authorities to calculate the amount of tax that the individual owes to the government. The process of paying GST online is very simple, which involves visiting the GST portal and then consecutively selecting the relevant options.

Composition Scheme of GST Registration:

Although levying taxes is an essential aspect of the smooth functioning of an economy, it can be a cause for hindrance for a specific group of people. For businesses which fall under the SME category, it could be quite a hassle to follow every step that is essential under the compliance provisions of the government. Hence, the Composition Scheme is what these small businesses opt for to relieve them of the gruelling methods and offer them to pay GST only on a certain percentage of their total turnover (which needs to be less than Rs. 1.5 crores per annum).

Any registered tax-payer whose total income is less than Rs. 1.5 crore per year is eligible to apply for this scheme. Moreover, unlike the regular GST payers who are supposed to file for three monthly returns and one yearly return, the individuals under the Composition Scheme need to file only two returns which are GSTr 4 (quarterly) and GSTr 9A (annual).

People who come under the regular scheme are required to file three monthly returns, namely GSTR 1, GSTR 2, GSTR 3 and one yearly return which is GSTr 9.

But, not every individual can reap the benefits of this scheme. There are certain criteria that need to be satisfied before an individual applies for the Composition Scheme:

• The individual applying for this scheme needs to be a registered tax-payer recognised by the law.
• Only service providers with a turnover of Rs. 50 lakh per annum can apply for this scheme.

For a better understanding, here is a list of individuals or businesses that are not allowed to apply for this scheme:

• Producers of ice cream, tobacco and pan masala
• Suppliers who are a part of the supply process of goods and services
• A taxable individual who is a non-resident or a regular taxable individual
• Businesses or individuals who function (supply goods) through an e-commerce website which levies tax at the onset.
• Any individual who supplies goods which are not covered under the GST Act.
• A business or a person who has bought goods from an unregistered supplier.

Limit under the Composition Scheme of GST:

The limit which falls under this particular scheme may vary owing to a lot of factors:

• Traders and Manufacturers: If a business has acquired new registration under the scheme of GST, then they should remember that their present turnover in the ongoing financial year should be below Rs. 1.5 crore. But if it is a business which is already registered, then their turnover of the preceding financial year should not go beyond Rs. 1.5 crore.
• Providers of Services: In case the business is a newly registered one, then the total business of the current financial period should be below Rs. 50 lakh. For an already registered business, this same turnover amount should not exceed in the previous financial year.
• Restaurants which do not serve alcohol: In this case, the same conditions apply as that in the case of manufacturers and traders.

It is important to remember that if the total amount by any means exceeds Rs 1.5 crore, then the business will have to switch over to the regular GST registration which is a rule under the Composition Scheme.

Advantages of being registered under the Composition scheme:

Since this is a scheme which has a lot of special provisions, there are quite a few factors which are highly beneficial and useful for the individuals opting for it:

1. Fewer documents to show: Businesses registered under this scheme have the advantage of not needing to produce multiple documents compared to the registered individuals under the regular scheme. They are excluded from producing tax invoices and have to file only two different GSTr. This is known to increase the efficiency of small businesses.

2. More chance of cash in hand: Having to pay lower amounts of GST automatically means that there will be more funds remaining. This can, in turn, be used for the upliftment of the business and for necessary investments.

3. Lesser amount of GST: As it is already known, individuals registered under this scheme have an advantage of paying less GST as compared to the regular GST payers.

From this, it can be concluded that the government has put in a lot of careful planning while deciding to introduce this tax in the economy. It was done for the betterment of the economy because the imposition of one uniform indirect tax all over the country would lead to a smoother financial situation. There will be no discrepancies in any step and small businesses would get the opportunity to establish themselves.  Hence, GST registration should be considered very crucial if an individual wants to be a recognised tax-payer of the country and avail the benefits that it offers.

Also read:
GST for the Common Man: Benefits & more!
GST for Every Business

FAQs

Q. Can any tax-payer register under the Composition Scheme?

A. Every tax-payer is not eligible to register under this particular scheme. Only businesses whose annual turnover is less than Rs. 1.5 crore can register.

Q. What are the ‘Special Category States’?

A. Under this category, there are nine states, namely Manipur, Mizoram, Arunachal Pradesh, Meghalaya, Assam, Nagaland, Tripura, Sikkim and Himachal Pradesh. The annual turnover limit for these states is Rs. 75 lakh.