Since the Goods and Services Tax (GST) regime was rolled out in 2017, it has been met with both positive and negative responses. On one hand, it has eased the compliance burden for businesses by consolidating various tax liabilities and duties imposed by different authorities, which has been particularly beneficial for small businesses. On the other hand, it has also been difficult for some business owners to understand the nuances of the tax regime, making it difficult for them to complete compliance processes.
For small businesses, it might be challenging to navigate the complexities of the GST regime without support. To remedy this, the government introduced the GST Composition Scheme, which offers a simplified alternative for taxpayers, allowing eligible businesses to pay tax at a lower, fixed rate based on their turnover. This scheme is designed to reduce the compliance burden for small taxpayers, making it easier to manage their tax obligations by simplifying the intricacies of the GST regime. In this article, we will explore everything you need to know about the GST Composition Scheme, from its eligibility criteria and benefits to the application process and more.
The GST Composition Scheme is just a simplified taxation option provided by the government under the overall GST regime. As stated before, it is designed to ease the tax compliance burden for small businesses. It allows eligible taxpayers to pay GST at a fixed percentage of their turnover, rather than calculated based on the standard rates, making it easier for micro, small, and medium enterprises (MSMEs) to comply with tax regulations. The scheme is available for small business owners whose annual turnover does not exceed the specified threshold under the composite GST scheme, and it allows them to file quarterly returns instead of monthly ones.
To avail of the GST Composition Scheme, MSMEs must meet the following criteria:
MEME business owners who choose to opt for the GST Composition Scheme need to file the following GST Composition Scheme forms:
The GST Composition Scheme rules mandate that businesses must not claim input tax credit and are required to issue a bill of supply instead of a tax invoice in order to be eligible. The taxpayer is required to mention that the business is composition taxable on every notice or signboard at their main place of operation, as well as any additional premises where they operate from. The business owner is also barred from collecting any tax from recipients on supplies made by them in order to be eligible under the GST composition scheme.
The GST Composition Scheme is available to businesses with an annual turnover up to ₹1.5 crores in most states, with a lower limit of ₹75 lakh in certain special category states. The GST exemption limit is set at Rs. 40 lakhs for goods and Rs. 20 lakhs for services. Businesses with annual revenues below these limits are not mandated to register for GST; however, they may opt to do so voluntarily. If they do register, they are eligible for the GST composition scheme as well.
The GST Composition Scheme have a number of benefits for small businesses, including:
Under the GST Composition Scheme, the following tax rates are applicable to small businesses:
Businesses that register under the GST Composition Scheme cannot issue invoices. Instead, they are required to issue a Bill of Supply in lieu of a tax invoice. The bill must include the following: “composition taxable person, not eligible to collect tax on supplies” at the top. The bill must also contain the name, address, and GSTIN of the business owner, a consecutive serial number, date of issue, details of goods or services, value before tax, and the business owner’s signature.
To apply for the GST Composition Scheme, eligible taxpayers are required to log in to the GST portal, select the ‘Opt for Composition Levy’ under the services tab. Then they have to submit the required details using Form GST CMP-02. Once the application is submitted, the taxpayer is required to file Form GST CMP-03 within 90 days, detailing the stock held by the business.
The government implemented the GST Composition Scheme with the aim of easing tax compliance burden for small businesses. It is a great option for MSMEs, seeking to simplify their tax compliance process. By offering reduced tax rates, fewer filing requirements, and a straightforward billing process, the scheme helps small businesses manage their GST obligations with ease. This, in turn, allows them to focus more on their business activities and invest in long-term growth plans. Now that you are familiar with the details of the scheme, as a small business owner, you can apply for it and reap the benefits.
Kinara Capital extends collateral-free business loans for small enterprises to capitalise on every growth prospect. Enrolled MSME Business owners can swiftly assess their loan eligibility in just 1 minute by commencing the digital-first application procedure on the Kinara Capital website or by downloading the myKinara App. Eligible MSME entrepreneurs can furnish the requisite documents, and the loan funds will be digitally disbursed to their bank account within 24 hours.
We have a dedicated customer support team available between Monday – Friday (9.30AM – 6.00PM) at our toll free number 1800-103-2683 for any questions or assistance. This ensures that entrepreneurs can get the help they need throughout the loan process.
Are there any penalties for non-compliance under the GST Composition Scheme?
Failing to comply with the rules of the GST Composition Scheme after opting for it can result in penalties, including being required to pay the difference in tax along with interest for the default period.
How do I know if my GST is under the Composition Scheme?
You can check by logging into the GST portal and reviewing your taxpayer profile, where your scheme status will be shown.
Who is eligible for the Composition Scheme under GST?
Businesses with an annual turnover of up to ₹1.5 crore (₹75 lakh in some states) and who do not engage in interstate supply, e-commerce, or provide exempted services are eligible.
Are there any drawbacks of opting for a composition scheme under GST?
Opting for the composition scheme means not being able to claim input tax credit, restrictions on interstate sales, and being unable to issue tax invoices to customers.
