Indian taxation structure was entirely revolutionized on 1st July 2017 when the Indian government decided to implement a new set of tax scheme under the name of GST. The Goods and Services Tax brought in an abundance of change in the economy, and for the most part, it bodes well with the consensus.
Not only did it help simplify the entire tax payment practices for the MNCs, but it acted as a saviour for numerous small and medium-sized businesses too. While GST did efficient work for its major part, it brought some compliance hurdles for some firms.
To eradicate these said issues, the GST Council proposed the GST Composition Scheme. The scheme allows the taxpayers some flexibility while paying taxes as the routine tax payment process can prove to be a bit tedious.
Any taxpayer who is deemed eligible as per the scheme guidelines can avail of the scheme and gain some concession. The article contains every vital information regarding the scheme, be it gst composition scheme turnover limit or its pros and cons.
Who is Eligible and Ineligible for the GST Composition Scheme?
The eligibility for the composition scheme wholly depends on your annual turnover. At first, the turnover limit was set at 75 lakhs INR, but it was extended to 1 crore INR after the 22nd GST council meeting on 6th Oct 2017.
The limit was once again amended to 1.5 crore INR on 10th Nov 17 in the 23rd GST Council meeting. The limit has not changed ever since, meaning if your annual turnover stays under one crore INR, then you are eligible to apply for the GST Composition Scheme.
The decision to opt for the scheme depends entirely on the taxpayer, but there is no explicit harm to not opt for the same. However, some taxpayers are deemed ineligible to apply for the scheme, such as:
- A producer of pan masala, ice cream, and tobacco.
- Any business partaking in inter-state dealings.
- Any individual who is either a general taxable or non-resident taxable.
- Any organization supplying goods via eCommerce portals.
Now that you possess the basic knowledge of the scheme, its eligibility and ineligibility, you better consider applying for it. If you are trying to enrol or pay your GST, then you should use the gst payment portal.
Pros of GST Composition Scheme
The Composition Scheme possesses numerous pros, but reduced compliance is undoubtedly the highlight. Now the taxpayers get more freedom and have to bear with fewer restrictions.
If you are registered under the scheme, then you merely need to file a total of 5 returns. Amidst these said returns, four are to be filed quarterly while the remaining one is filed annually.
Contrarily, if you are not registered under the scheme, then you have to go through the trouble of filing them monthly alongside an additional yearly return. The taxpayers are even unburdened from the nuisance of marinating routine records.
As the scheme charges relatively less tax, businesses are allowed to utilize their working capital more freely. The same happens because the capital is now free from the multitude of tax layers, thus resulting in higher liquidity. The saved funds can be utilized at an apt place, helping the firms widen their reach.
If you are registered under the GST Composition Scheme, then you get the benefit of low tax rates too. The rates vary depending on your turnover and business scale, with smaller firms paying relatively low interest. Here is what it looks like:
- Any firm dealing in manufacturer and trader has to pay 1% of their turnover.
- In the case of restaurants, the interest rate peaks to 5% of the turnover.
Cons of GST Composition Scheme
Tax Collection Not Allowed
A taxpayer registered under the scheme cannot collect any form or portion of the tax from their buyers. In fact, they are not permitted to raise a tax invoice either; thus, the tax paid under the scheme is borne by the taxpayer only.
Interstate Sales are Not Allowed
Although the composition scheme has several esteemed pros, it is not free from its fair share of issues, and the most devastating one is the prohibition on interstate sales.
If your business partakes in interstate sales, then you cannot opt for the scheme. Moreover, the restriction is extended to the exports of goods, as it is perceived under the same light as an interstate sale.
Services Supply, Exempt Goods & eCommerce Portal Supply Not Covered
If your business provides services (except restaurant related activities), then it cannot be registered for the scheme. Moreover, if your business supplies exempted goods outside the scheme’s scope, then it is deemed ineligible to apply as well.
The said eligibility is extended to the taxpayers who supply goods via any eCommerce channel. As a hefty portion of the taxpaying crowd is refrained from availing the scheme, it creates a barrier, thus negating the scheme’s primary goal.
Tax Credit Not Available
After your business is registered under the composite scheme, you are prohibited from opting for an input tax credit. The primary reason to impose GST was to remove issues like double taxation and the cascading effect.
However, the motive was rendered useless after the Composition Scheme was levied. A taxpayer registered under the scheme cannot get the input tax credit paid on the inward supply via another taxable individual.
Similarly, if the buyer has opted for the scheme, then they do not receive any credit either. It results in the tax amount getting accumulated with the scheme cost, thus increasing the cost paid to gain a customer.
To Wrap Up
Since the scheme disqualifies a hefty portion of the taxpaying crowd, it is only viable for them to elude it. A taxpayer registered under the Composition Scheme would ultimately refrain from purchasing commodities through another registered dealer.
Due to all this, the scheme is bound to fail on several fronts; however, it still proposes numerous tempting benefits. On the other hand, if the taxpayer finds themselves suitable under the scheme, then opting for registration will prove to be fruitful on numerous occasions.