The Fundamentals of the GST composition scheme

India saw the introduction and implementation of the Goods and Services Tax (GST) in 2017. Since then, there has been a massive change in the way taxes are calculated and handled. Under the previous tax regime, consumers would face the brunt of double taxation or the cascading effect of a variety of taxes such as VAT, Service Tax, Entertainment Tax, Sales Tax, and others. With the advent of GST, however, there exists no cascading effect because these indirect taxes are absorbed under the GST.

The introduction of GST has simplified tax calculations and reduced a great deal of confusion and stress around tax calculations and payments. The three primary taxes that you have to pay on goods and services are the Central Goods and Service Tax (CGST), State Goods and Service Tax (SGST), and the Integrated Goods and Service Tax (IGST). CGST and SGST are levied by the central and state governments, respectively, on transactions that happen within a state, whereas the central government levies IGST on supplies that occur between states.

What Is The GST Composition Scheme?

The GST composition scheme is a scheme that qualified taxpayers can avail under the GST regime. If you are a taxpayer and bring in a revenue of less than Rs. 1.5 CR annually, you may apply for this scheme.

It allows you to save yourself from the troubling process of handling GST-related paperwork. The GST composition scheme reduces the burdensome process making GST tax payments for small businesses.

Compared to standard GST filing, the composition scheme under GST has a few intriguing benefits to its credit. These benefits primarily include a significant reduction in documentation or paperwork and less compliance and less tax liability. You are liable to pay taxes at a fixed rate of 1 -6% of your taxable income once your GST registration process is complete.

Are you eligible for the Composition Scheme under GST?

If you earn a yearly turnover of less than Rs. 1.5 CR, you may apply for the GST composition scheme. The 2018 CGST Act says that a composition dealer may offer services for up to 10% of the sale or Rs. 5 Lakh, depending on which out the two is higher. The GST council stated that they had plans to increase the threshold for providers of service in 2019. There are a few groups who are not eligible for the GST composition scheme. Here are those groups:

  • Manufacturers dealing with Tobacco, pan masala, and ice cream
  • Non-resident taxable person
  • Casual taxable person
  • Companies that make supplies of goods and services through an E-commerce operator
  • A supplier of goods and services making deliveries between states

What is the threshold for Providers of Goods and Services to qualify for the GST Composition Scheme?

Bear in mind that the threshold for the composition scheme under GST entirely depends on the type of business you are involved in.

Traders And Manufacturers

Assuming you are a company that is only recently registered under GST, your yearly turnover in the current financial year should not exceed Rs. 1.5 CR if you wish to make use of the composition scheme under GST. However, if you’ve already registered your business to GST, your turnover during the last financial year should not have gone past Rs. 1.5 CR. Keep in mind that these conditions apply to restaurants that do not serve alcoholic beverages.

Providers of Service

As is the case with traders and manufacturers, your yearly turnover during the financial year cannot cross Rs. 50 Lakh if you are a newly registered business. However, if you are not a newly registered business, your sales during the past financial year should not have surpassed Rs. 50 Lakh.

Conclusion

Chances are you are new to GST and the GST composition scheme. This guide should make it easy for you to get started and help you figure out where you stand with your business if this is the case. However, you ought to be aware of the terms and conditions, your kind of business, and consider the other factors that may apply to your business specifically.

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