Benefits of Registration under GST Composition Scheme

Ashish M. Shaji

05 Apr, 2021

The GST composition scheme has been introduced to minimize the compliance burden for small taxpayers. Small business owners have to focus on business instead of compliance; hence they may not be able to comply with the GST laws as a regular taxpayer. It is expected that the composition scheme will help SMEs and will ensure ease of doing business in India.

Conditions for Opting Composition Scheme

• The threshold limit for eligibility of GST registration under composition scheme has been enhanced from existing 75 lac to 1.5 Crore. This means that taxpayer with annual aggregate turnover of Rs. 1.5 Crore or less can opt for GST Registration under Composition Scheme.
• The benefit of composition scheme can be availed only when all of the registered business segment/entities under a single Permanent Account Number opt for such scheme.
• The taxpayer registering under the composition scheme are required to pay tax on a quarterly basis and also required to file a quarterly return in Form GSTR-4 by the 18^th day of the following quarter.
• Taxpayer registered under composition scheme will not be able to issue a tax invoice.
• Also, he cannot utilize the input tax paid on the purchase of goods.

Benefits of Registration under GST Composition Scheme

Irrespective of the above mentioned numerous restrictions, Composition Scheme offers a lot of benefits to the taxpayer.

Following are the benefits of the composition scheme and this is the reason we recommend that SME^[1] should register themselves under GST Composition scheme.

• Easy Compliance: Under the GST composition scheme, the taxpayer is required to file GST Returns and pay taxes on a quarterly basis. If you register as a regular taxpayer, you have to file 37 returns a financial year.  Non-filling of returns will attract penalty. If you chose to register as regular taxpayers, then you have to file 3 returns in a month as well as maintain all records and in the case of taxpayers registered under composition, the scheme is required to file only quarterly returns, no such strict requirement for maintenance of records. You will save accounting and compliance cost if you opt to register under composition scheme and thus you will not be worried all of the time about the record keeping and can focus on business rather managing GST compliance procedures.

• Tax saving: Taxpayer registered under composition scheme can avail them of a concessional tax rate. Not like the regular taxpayer. The tax rate under composition for a taxpayer is nominal under the GST law.

Thus, if you see in the above example, a taxpayer registered under the composition scheme and consumable goods to the consumer at a similar price is earning a higher profit and his tax liability is also lower.

• Higher working capital- The taxpayers who are registered under the composition scheme are required to pay and file taxes on a quarterly basis. Also, the tax rate is much lower than the normal rate and also you will save on fees as only one return in a quarter has to be filled instead three returns in the case of a normal taxpayer.

Read our article:What is Composition Scheme Under GST Law

Impact on B2B supplies

 The composition supplier working under B2B Business model would not be able to pass the input received on the purchase of goods. He cannot raise a tax invoice and hence the GST cannot be collected from the purchaser.  The composition scheme for B2B business would make them non-competitive. However, the composition scheme can be a good option for small details and would be right fit where there is a purchase from composition dealer and a sale to an end consumer.

Conclusion

It can be concluded that the composition scheme has a prospect of being the growth driver for small taxpayers who carry intrastate transactions.

Do you wish to register for GST? Or are you looking for a GST Implementation advisory? Would you like to know about the GST impact on your industry under GST? Please feel free to contact Enterslice, India’s leading online legal and tax advisory firm.

Read our article: Composition scheme under GST & Presumptive Taxation Scheme