GST Composition Scheme: Eligibility, Benefits, and Turnover

The Goods and Services Tax (GST) has completely revolutionized India’s tax structure. Many tax policies are framed under this tax regime to bring transparency and reduce complexity. One such scheme is the GST Composition Scheme – a simplified compliance mechanism to reduce the burden on smaller players.

This blog will explain the in-depth concept of the GST Composition Scheme, from describing the conditions for availing it to the rules and benefits. If you want to know everything about the composite scheme of GST in 2024, then stay tuned.

Let’s start by understanding what a composite GST scheme means for small taxpayers.

What is the GST Composition Scheme?

The GST Composition Scheme is an optional method offered to eligible small taxpayers under the GST tax structure. This scheme allows taxpayers to choose a simpler way of calculating and paying GST by replacing the regular system with a flat rate on turnover.

The composite scheme of GST reduces tax liability, and compliance requirements and streamlines the entire tax payment process for businesses.

In the next section, let’s explore the conditions necessary to avail of the GST composition scheme.

What are the eligibility requirements for participating in the Composition Scheme?

The following are the eligibility criteria for businesses to avail themselves of the GST Composition Scheme in 2024:

• Turnover Limit: The business’s annual turnover for the previous financial year should be at most Rs. 2 crore.
  Note: For businesses that are situated in North-Eastern states and Himachal Pradesh, this limit is Rs. 1 crore.
• Nature of Business: The scheme applies to businesses dealing with the supply of goods or services (excluding those supplying a taxable service through an electronic commerce platform).
• Inter-State Supplies: Ensure your business is not involved in the interstate supplies of goods and services, as it’s not allowed under the composite scheme of GST.

Let’s continue our discussion on the GST composition scheme. We will explain the rules in the next part

GST Composition Scheme Rules

The Composition Scheme has specific rules that are important for its functioning:

• GST Registration: Every eligible business has to register under GST to avail the benefit of the Composition Scheme.
• Tax Rate: Businesses can avail of the flat rate on the business’s annual turnover. These tax rates are pre-defined:
  • 1%: Applicable for manufacturers and traders
  • 5%: For restaurant-type businesses without liquor sales
  • 6%: Remaining all other service providers
• Tax Payment: The tax liability is calculated by multiplying the turnover for the tax period by the applicable rate. These calculated taxes need to be paid quarterly.
• Input Tax Credit (ITC): Businesses that are getting the benefits of the GST composition scheme are not allowed to claim input tax credit on purchases. It means they are not allowed to deduct the GST paid on their purchases from their tax liability.
• Bill of Supply: A “Bill of Supply” needs to be issued for outward supplies, mentioning “composition taxable person” and “not eligible to collect tax on supplies.”
• Returns: Once businesses register themselves in the Composition scheme, they can easily file a simpler quarterly return compared to the regular GST return.

Who cannot opt for the Composition Scheme?

There are a few businesses that are not allowed to register for the Composition Scheme, including:

• All those businesses that are manufacturing, pan masala, and tobacco products.
• Companies that supply goods under a brand name on behalf of another person.
• All those businesses that use online platforms or electronic commerce marketplaces for selling goods.
• Businesses that work for goods supply on a consignment basis.
• Businesses involved in the interstate supply of goods.

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What is the Composition Scheme limit?

Depending on your business’s annual turnover, companies can apply for the GST composition scheme. The turnover for the companies lies within Rs 1 crore, or for certain regions, it is 2 crore. If, by any means, your turnover crosses this fixed limit, then you need to migrate to the regular GST scheme from the next tax quarter onwards.

What are the advantages of the Composition Scheme?

Any form of business that uses the composition scheme of GST for filing taxes can enjoy many benefits of the scheme, including:

• Simplified Compliance: The scheme makes the entire GST filing and compliance process easy. It removes the complex calculations and filing procedures.
• Reduced Paperwork: There is no need to maintain detailed records, and claiming input tax credits is eliminated.
• Lower Tax Liability: The flat rate system generally translates to a lower tax burden compared to the regular GST structure, especially for businesses with low profit margins.
• Reduced Administrative Costs: Businesses can now save their time, effort, and money on managing GST compliance tasks. This helps them focus on core business activities.

GST Composition Scheme Rate

Following are the GST Composition Scheme rates:

• 1%: For manufacturers and traders.
• 5%: For restaurants without liquor sales.
• 6%: For all other service providers.

Conclusion

The GST Composition Scheme is a helpful tool for small businesses in India. The scheme not only simplified the tax procedure but also saved time and effort for businesses. It offers a simplified way to comply with GST regulations, reduces the tax burden, and frees up resources.

Ensure your business types and eligibility criteria meet the requirements for the GST composition scheme before enrolling. If still you have confusion, then resolve your queries with the tax professionals and stay compliant with the tax laws.