We live in a world that favors the bigger sectors of the economy. They get to enjoy more benefits than the smaller ones that co-exist in it. But in recent years, the government has started to focus on these small sectors too, which help build an economy. The introduction of GST led to redefinition and restructuring of big businesses, but it also had quite a bundle in store for the micro, small and medium enterprises. One such scheme initiated by GST is the Composition Scheme. As the name suggests, it is meant to soften the taxes levied on small and medium businesses. However, there has been an ongoing debate about the disadvantages that come along with its advantages. To understand those, it is first important that we understand what GST Composition Scheme is.
The GST Composition Scheme was introduced for smaller businesses and start-ups, which may have found it difficult to comply with the newly introduced taxation system. To solve their issues, the government introduced a composite scheme for them. Earlier, tax had to be filed monthly, but under the Composition Scheme it was changed to quarterly taxation. It is an option to pay taxes on taxable turnover of the business at a flat rate.The scheme has reduced the need to maintain and provide records for filing taxes. The composite taxpayer will have to pay the tax at a fixed percentage which is usually lower than the regular taxpayers. However, there is a criterion for eligibility to apply for this scheme.
The usual tax requirement demands maintenance of substantial documents and records along with regular submission of taxes. Small businesses cannot afford to keep up with a monthly filing system for the same, as their turnover is much lower than the macho companies. Thus, the GST Composition Scheme pardons the regular system in the interest of small businesses which don’t participate in import and export related activities.
Firstly, all businesses cannot avail this scheme as it is limited to certain eligible ones.
Other important features of the GST Composition Scheme include:
Just as there are two sides to every coin, the GST Composition Scheme too has its advantages and disadvantages. The pros of this scheme that make it beneficial are:
However, there are some disadvantages that may come with if you are looking to expand your business or looking to avail benefits that a regular taxpayer would:
Therefore, the GST Composition Scheme has been developed for those businesses which are small in terms of turnover and keep their trading territory within the state. However, a business can withdraw its registration if it wishes to expand its business territory to national and international grounds or if its turnover increases beyond the eligibility criterion. Everything comes with its pros and cons. Similarly, according to their requirements, small businesses can weigh out the benefits and drawbacks of the GST Composition Scheme as a boon or a bane.