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GST Composition Scheme Research Team | Posted On Tuesday, November 20,2018, 03:27 PM

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GST Composition Scheme



The Goods and Services Tax popularly called GST is a single indirect tax for the whole of India. It is a game changer for the economy. It replaces several indirect taxes and is a comprehensive, multi-stage, destination based tax. GST removes the cascading effects of tax on tax.

The main components of GST are CGST (Central Goods and Services Tax), SGST (State Goods and Services Tax) and Integrated Goods and Services Tax. 

GST has the composition scheme for small tax payers to escape GST formalities. GST composition scheme allows small businesses, startups and SMEs to pay tax at a fixed rate based on their business turnover in the financial year. The GST composition scheme doesn’t enjoy the benefit of input tax credit. If your business opts for the composition scheme, no tax can be collected from customers. CGST and SGST floor tax cannot be less than 1%. As per the 23rd GST Council meeting on 10th November 2017, the threshold for GST composition scheme was recommended for an increase from Rs 1 Crore to Rs 1.5 Crore.

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GST Composition Scheme

Eligibility for GST Composition Scheme:

Manufacturers of goods, dealers and restaurants not serving alcohol are eligible for GST composition scheme. Businesses with annual turnover up to Rs 1.5 Crores can opt for GST composition scheme. Add the turnover of all businesses with the same PAN to calculate the turnover for GST composition scheme.

GST Composition tax rate:

GST Composition tax rate

GST Composition Scheme Registration Online:

STEP 1: Access GST Home Page at the website.

STEP 2: Log on to the GST Portal by filling up Login Credentials.

GST Composition Scheme Registration Online

STEP 3: After the log in select the “Composition Scheme” from the Registration Menu

STEP 4: After selecting the “Composition Scheme” you are directed to a new screen called “Application to opt for Composition Scheme.” You will have GSTIN, Legal Name of Business, Trade Name and Address of Principal Place of Business populated on the screen.

STEP 5: The nature of business and jurisdiction is listed:

nature of business and jurisdiction is listed

STEP 6: Pledge to abide by the terms and conditions of the GST composition scheme.

STEP 7: Make the submission and tick the verification box. This box states that the information supplied is true and no vital facts have been concealed from tax authorities.

STEP 8: Select the authorized signatory from dropdown menu and enter place.

STEP 9: After selecting the Authorized Signatory and the name of the place, options to submit form get activated. You now select the desired mode as DSC, E-sign or EVC. Let’s consider the case of DSC:

STEP 10: Click on proceed.

STEP 11:The system automatically retrieves the digital signature from your laptop. This is done using the emSigner and the pop-up helps select the desired DSC. 

STEP 12: After selecting the desired digital sign, Click Sign. After the digital signature is authenticated you see the SUCCESS message.

STEP 13: After system validation the ARN is sent via SMS or email within 15 minutes.

Features of GST composition scheme:

  • Business Turnover for the financial year must be less than Rs 1.5 Crores.
  • Fixed tax rate on total sales turnover.
  • No input tax credit
  • You can file tax return each quarter instead of each month.
  • Bills of supply are issued and not tax invoices.

Benefits of GST Composition Scheme:

  • Less compliance under GST Composition Scheme:

Under the normal GST scenario, you have to file a minimum of 3 monthly tax returns and one annual return. A penalty is charged on non-compliance. Small businesses, MSME’s find it difficult to maintain books of accounts on a daily basis to record each and every transaction. GST composition scheme offers quarterly return filing for eligible businesses, helping them focus on the business rather than tax filing.

See Also: Input Tax Credit Under GST

  • There’s a reduced tax liability:

Being registered under GST composition scheme means paying less taxes. For a manufacturer it’s just 1%. For a supplier it’s 5%.

  • High liquidity for small businesses:

SMEs and small businesses under normal GST find working capital blocked because of input tax credit. The supplier pays normal taxes and credit of input tax credit happens only after tax returns are filed. Under GST composition scheme there’s no input tax credit. Its taxation at a nominal rate.

SEE ALSO: Aadhaar Card Loan

Duration of GST Composition Scheme:

  • Tax filing is done each quarter which means 4 tax filings a year.
  • You also have annual tax filing.
  • Dates of tax filing under GST composition scheme are April 18th, July 18th, October 18th, and January 18th.

SEE ALSO:What is a Term Insurance Plan? 

Demerits of GST Composition Scheme:

  • If you are registered under GST composition scheme you cannot carry inter-state transactions and offer import-export of goods and services. If you cannot carry out inter-state transactions and are restricted just to inter-state transactions, it’s difficult to expand the business.
  • Businesses under the normal GST tax system might hesitate to do business with Companies under the GST composition scheme. This is because there’s no input tax credit. A business under the normal GST taxation will not enjoy input tax credit if it does business with Companies under the GST composition scheme.
  • There’s no collection of tax: GST composition scheme has nominal tax rates, but money cannot be recovered from the buyer as he cannot raise a tax invoice.
  • Heavy penalties: Let’s say you are not eligible for GST composition scheme and you are incorrectly put under the scheme. You would have to pay differential tax along with a penalty which can be extended to 100% of total tax liability. A small tax payer with limited knowledge on taxation can land in a mess and pay a heavy penalty.

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