As per GST Act, Input tax credits on the purchase of goods or services can be only claimed, if...
Section 10 of the Central Goods and Service Tax Act, 2017 introduced the concept of a composition scheme. GST was introduced with an objective to eliminate complexities of the indirect tax regime and it requires regular filings and proper maintenance of records in a strict manner. However the same can become a burden and an additional task for a small-scale businessman. To facilitate such small-scale traders and businessmen and to reduce the complication of procedural compliance, the composition scheme under GST was introduced. Taxpayers registered under this scheme will be taxed at nominal rates of 1% to 5%.
One major point to be understood about this scheme is that it is an option provided to registered taxpayers already registered under the Act, i.e. such registration is not a mandatory legal requirement, it is only a right/option given to the taxpayer, which they can avail if their aggregate turnover is less than 1.5 Crore rupees.
For any taxpayer to opt for registration under this scheme, he or she must satisfy both of these eligibility criteria:
NOTE: If more than one taxable person is registered on the same PAN number, then the compensation scheme can be availed by only one if all of such taxable persons will avail the same.
Other than the taxpayers not covered under the above-mentioned criteria, sub-section (2) of section 10 of the Act specifies a list of registered taxpayers not eligible to opt for it. They are:
Other than these specified categories, another type of taxpayer who cannot opt for the composition scheme is occasional traders i.e. ones who are not involved in regular business cannot avail this scheme’s benefits. Such occasional traders are a Casual Taxable person and Non-Resident Taxable Person.
Tax rates applicable for suppliers registered under composition scheme enjoy the benefit of lower tax rates as compared to others. These applicable rates are:
2% of the turnover – for the manufacturer
5% of the turnover – for persons engaged in making supplies referred to in clause (b) of paragraph 6
1% of turnover – for other suppliers
Reduced Tax Liability: One of the major benefits under the scheme is the reduced tax rates, as the suppliers are only required to pay somewhere between 1 to 5% of aggregate turnover. In general cases without GST Registration, taxpayers might have to pay as high as 28% depending on their business.
Reduced Compliance: Along with reduced tax rates, another major benefit is reduced compliances. In the general course of business, a normal taxable person is required to file a minimum of three GST returns monthly including a statement of outward and inward supplies. However, after registration, he will have to file only quarterly return in Form GSTR-4 .
Increases Liquidity: As the scheme provides the lower tax rate benefits, it results in more funds left in the hands of the taxpayer, which he can utilize to further his business.