The current indirect tax regime includes a Composition Scheme under Goods and Service Tax (GST). This scheme is meant for sake of small businesses that can choose to remit a set percentage of their turnover in form of tax instead of the regular tax rate.
Who Is Eligible For The Scheme?
Any person with registration, whose total turnover recorded in the previous fiscal year must not have exceeded Rs.75 lakh, may choose to remit a set turnover percentage as the tax instead of the regular rate of tax.
In case a registered person from some of the states opts for composition scheme, it is a must that their total turnover of the past financial year must not cross Rs.50 lakh. The states are Assam, Arunachal Pradesh, Mizoram, Meghalaya, Manipur, Sikkim, Nagaland, Himachal Pradesh and Tripura. This can be ensured by consulting GST software services.
Tax Rates As Per Compositions Scheme
Under this scheme, persons with registration are classified under three categories. A registered person must remit tax on turnover in UT or State at a rate which must not cross:
- 1% for manufacturers
- 5% for rest of suppliers
- 5% of the restaurant sector
Those Exempt From Composition Scheme
The following taxable persons are not allowed to avail of the composition scheme in case they are:
- Involved in services supply apart from supply of food apart from any other articles which are edible for humans or drinks.
- Supplying goods for which tax cannot be levied under this Act
- Making inter-state outward supplies
- Supplying goods via e-commerce stores who are needed for collecting tax at source
- Involved in manufacturing goods such as a) ice cream / other such edible ice, containing cocoa or not. b) Pan Masala, c) Tobacco and substitutes of tobacco
Conditions For Levy Of Composition Scheme Of Tax
The person opting for paying tax under composition scheme must comply with following conditions:
- He is not a casual person who is taxable or a not-residing taxable person
- If a person registered as per previous law who migrated to GST, the stock of goods on the specified day must not have been purchased via inter-state commerce or trade or imported through a foreign country or garnered from their branch located in the exterior of the state or via an agent in the outside of the state.
- He may issue the supply bill instead of invoice of tax and he shall use the words,’ composition taxable person, without eligibility to collect tax on supplies” on the topmost part of supply bill issued by him.
- He may feature the legend,” composition taxable persons” on every signboard or notice exhibited at his main business location.
- All persons with registration, having the same PAN will have to choose composition scheme. GST accounting software will help in this.
Points To Note
- Composition dealers face no limitation of doing inter-state purchases.
- The option for the composite scheme will lapse with effect from the day when aggregate turnover of the registered person crosses Rs. 75 lakhs.
- A person enrolled in the scheme is not permitted to avail of input tax credit for inward supply of goods as well as services. He is also not permitted to garner tax from the recipients for outward supplies. One must bear the tax out of on one’s own pocket.
These are some aspects of Composition Scheme of GST.