Small and local businesses would find it difficult to completely fulfill the compliance requirement of filing 37 returns under normal scheme of GST Laws due to their small size or nature of their operations. But this argument cannot be used to exempt them from payment of tax. To meet this dual objective of simplicity for tax collector and tax payer, a scheme called Composition Scheme is offered to taxpayer, by wheeich the taxpayers are given the option to pay an amount calculated on some parameter in lieu of tax calculated based on complex calculations expected by that law. In the GST law also the composition schemes will be offered to the following set of taxpayers.
A registered person whose aggregate turnover in the preceding financial year did not exceed Rs.50 lakhs, may opt for Composition Scheme , in lieu of tax payable in normal levy but not exceeding following % of turnover in State or in Union Territory:
a. 1% of turnover, in case of a manufacturer
b. 2.5% of the turnover in case of supply of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption) [Note: This composite supply of goods and service is treated a service by virtue of Schedule II of the Central Goods and Services Act]
c. 0.5% in case of others
Note: The State GST maybe an equal amount but we need to wait for the same to be passed.
The Composition scheme can be availed only by the following categories of registered persons:
a. He is not engaged in the supply of service other than supplies referred to in clause (b) of paragraph 6 of Schedule II. [i.e. supply of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption)]
b. Person not engaged in making any supply of goods which are not leviable to tax under GST Laws.
c. Person not engaged in making any inter-State outward supplies of goods. [Under the earlier draft GST law the above exception was not clear. The language doesn’t specify the interstate transaction, i.e. whether inward or outward supply. However, now it is clear that bar is only on making outward supplies while it is open for the supplier to procure inter-state supplies.]
d. The registered person should not be engaged in making any supply of goods through an electronic commerce operator. This restriction constrains numerous small suppliers/vendors from availing benefit of composition scheme. Although there is a valid reason behind the imposition of this restriction - the supply from an e-commerce operator may result in inter-state outward supplies in many cases.
e. The taxable person should not be a manufacturer of such goods as may be notified by the Government on the recommendations of the Council.
Tax collection and Availment of ITC:
The person registered under composition scheme is neither permitted to collect any tax from the recipient of supplies made by him nor can he avail any credit of input tax paid.
Return Filing and Tax Payments:
The persons paying tax under composition scheme are required to pay tax on quarterly basis and is also required to file a quarterly return in Form GSTR-4 by the 18th of the month following the end of the quarter instead of any statement of outward or inward supplies. The proper officer may cancel the registration where the said person has not furnished returns for three consecutive tax periods.
Thus, the Composition scheme provides a short window for those who fulfill the criterion to organize themselves as the limit of Rs. 50 lakhs is small. It is important for businesses to come under Normal Scheme so that restriction on interstate sale can be removed and enjoy the benefits of seamless flow of credit under GST and inter-state sales.