The composition scheme under GST is a simplified tax compliance system meant for small businesses with an annual turnover below a certain limit (currently Rs. 1.5 crore in most states, Rs. 75 lakh in some). Instead of calculating and paying GST at regular rates on individual sales and purchases, businesses under this scheme pay a fixed tax as a percentage of their total turnover.
Who is eligible for the composition scheme under GST?
Answer: Any business registered under GST with an annual turnover below the prescribed limit can opt for the composition scheme. However, certain exclusions apply, such as businesses supplying specified services, manufacturers of certain goods, and those making inter-state supplies.
What are the benefits of opting for the composition scheme under GST?
Answer: The main benefits include:
- Reduced compliance: No need to file regular GST returns, only one quarterly return required.
- Lower tax liability: Pay a fixed tax rate instead of complex calculations.
- Simplified record-keeping: Less paperwork and accounting burden.
What are the disadvantages of opting for the composition scheme under GST?
Answer: Some drawbacks include:
- Cannot claim input tax credit (ITC): This can be disadvantageous for businesses with high purchase costs.
- Limited applicability: Not available for all types of businesses and transactions.
- Higher effective tax rate for some: Depending on profit margins, the fixed tax rate might be higher than regular GST.
How to opt for the composition scheme under GST?
Answer: New businesses can choose the scheme during registration. Existing businesses can apply to specific windows. Consult a tax advisor for detailed guidance.