There would be a substantial amount of cost and expertise needed in complying with GST. While the big guys will easily adapt to it, it’s the smaller ones which will feel the heat for lacking either of the above.
Composition scheme, under GST, is just an extension of the current scheme under VAT and is aimed at helping the startups and SMB’s, who may initially find it hard to comply with the GST provisions.
In the Composition Scheme, a taxpayer will be required to file summarized quarterly returns instead of three monthly returns [as for a normal business].
Businesses, where the annual turnover does not exceed 75 lakhs, can only avail the composition scheme.
The tax under the composition scheme will approximately range between (1-5)%but not less than 1% of the annual turnover.
Composition Scheme is to be requested and availed at one’s own will, provided the parameters are met. Businesses registered under the VAT Composition Scheme will also have to enroll in the Voluntary Scheme to avail the benefits.
Bill of supply instead of normal invoice:
The Composite Tax payers would have to issue a Bill of Supply to their buyers and not the normal invoice.
Only Applies to intrastate supplies:
The businesses which operate within a state are only eligible for Composition Scheme. Interstate transactions will attract regular GST.
No Input Tax Credit:
Section 16 of the GST Act prohibits Input Tax Credit to those goods and services for which Composition Tax has been paid [against Section 8]
Unlike the normal GST returns [thrice a month], the Composite Tax payers would only have to file one quarterly return leading to a lesser compliance cost.
Strict penal provisions:
Since the composition scheme is a kind of tax subsidy at the first place, there are stringent parameters to be met including a fresh registration each year, to let the government know of your eligibility. Failing to comply the norms can lead to penalties, equal to the amount of tax along with the tax itself. There should be utmost clarity about the eligibility criteria of the Composition Scheme.
A registered person whether migrated or a new registration who could not opt for composition scheme shall be given the option to avail it till 30th September 2017 and such a registered person shall be permitted to avail the benefit of composition scheme with effect from 1st October 2017.
The switch from Composition Scheme to the normal GST is allowed during a financial year but not vice versa during the same FY.
The application for the same will have to be filed on or before 31st march of the previous year.
GSTR-4 is the form for the filing the returns for the Composite Tax Payers to be furnished quarterly within eighteen days of the relevant quarter.
The first return under the composition scheme will apply from the date registered till the end of the first quarter.
The following persons are not eligible to apply for the Composite Scheme:
All the businesses operating against a single PAN must register collectively under the scheme or not opt at all. Partial enrollment is not allowed under a single PAN.
Transiting to normal GST can make you avail the Credit of Input, from the day immediately preceding to the date from which opt to be taxed as a regular tax payer.
However, the following conditions apply to start getting an Input Credit:
The consolidated pros and cons of the Composition Scheme have been mentioned below to enable you to take an informative decision:
All supplies made including freebies, exempted services, exported services and taxable services under a PAN [excluding supplies on RCM] cumulatively form the aggregate turnover under the composition scheme.
GST CMP-02 is the form to be used for requesting to opt for the composition scheme, either
The tax under this scheme is to be paid quarterly on or before the 18th of the succeeding month by using the form GSTR-4. The form captures the turnover information and inward supplies of goods and services.
Yes, the GST Act allows the withdrawal from the composition scheme using the form GST CMP-04. This withdrawal will apply to all businesses operating nationally under a single PAN and no partial withdrawal is allowed.
Yes, the reverse charge does apply to the persons under composition scheme.
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