GST being applicable to mostly all in businesses, generates revenue for the government.

GST Composition scheme is introduced to reduce the compliance burden for start ups, small and medium enterprises.

 Eligibilty for the scheme

It is optional and voluntary to get registered under the scheme. A business with turnover less than Rs. 1crore or 75 lakhs in specific states can opt for the scheme till the date this turnover does not exceed this limit.

Conditions that need to be fulfilled in order to opt for the scheme are:

  • This is not for service providers (Restaurant owners are excluded). That is, only those who deal in supply of goods (intrastate) are eligible.
  • Any dealer that supply goods through Electronic commerce operator (eg: amazon, flipkart etc) cannot register under the scheme.
  • A dealer does not have the option to select the scheme for one business and pay taxes for the other one. That is the scheme is applicable to all businesses with the same pan.
  • Dealers cannot collect composition tax from the purchase party or to take input tax credit.
  • The tax liability for the person not eligible under the scheme shall be Tax + interest and penalty equal to amount of tax.

 Who cannot opt for the scheme

  • Service providers other than restaurant owners that serve food and non alcoholic drinks
  • Tobacco, pan masala and ice cream suppliers
  • Those engaged in interstate supply of goods
  • Non taxable good’s suppliers
  • Those suppliers who supply goods through electronic commerce operator, are eligible to collect TCS.

Benefits under the Scheme

  • Compliances are less – only a quarterly return is required
  • Tax liability is reduced – Manufacturer: 1% GST of turnover of state or UT; Supplier of food other than alcoholic liquor: 5% GST of turnover of state or UT; Others: 1% GST of taxable turnover of state or UT
  • Higher liquidity as the dealer has no worries about the supplier filing return as he cannot take credit and has to pay tax at a nominal rate.

 Limitations of the scheme

  • Dealer is not eligible to take input tax credit on purchases. And the buyer of those goods also cannot get the credit of taxes paid.
  • The assesse cannot deal in interstate transactions.
  • The dealer has to pay tax from his own pocket a he cannot charge tax from buyer.
  • If proved that assesse is wrongly registered under the scheme then penalty is too high.