Composition Scheme

Composition Scheme

Subject: Economy

Section: Fiscal Policy

Context:

In what will benefit small online sellers, the Goods and Services Tax (GST) Council has cleared the proposal to waive mandatory registration of such online vendors if their turnover is lower than Rs 40 lakh and Rs 20 lakh for goods and services, respectively.

Details:

• The Parliamentary Committee had observed that the mandatory registration requirement has placed additional burden on small sellers, increasing the compliance and operation cost.
• These small online vendors will now have to declare their Permanent Account Number (PAN), and principal place of business. Further, unregistered entities will also be restricted to declare their principal place of business only in one state, and will not be permitted to make interstate taxable supplies.
• The GST Council also permitted composition dealers to make intrastate supplies through e-commerce companies.

Composition Scheme:

The composition scheme is an alternative method of tax levy under GST designed to simplify compliance and reduce compliance costs for small taxpayers.

The main feature of this scheme is that the business or person who has opted to pay tax under this scheme can pay tax at a flat percentage of turnovers every quarter, instead of paying tax at a normal rate every month.

Taxpayers under the composition scheme of the GST have more relaxed rules with an increased turnover limit for the applicability, inclusion of service providers and reduced tax rates.

This scheme is also applicable to the real estate sector with respect to under-construction, ready and affordable homes.

Eligibility

• The composition scheme is applicable to manufacturers or traders whose taxable business turnover is up to ₹1.5 crore (₹75 lakh in case of North-Eastern States).
• A service provider can opt for the scheme if his taxable turnover is up to ₹50 lakh.

The following people cannot opt for the scheme-

• Manufacturer of ice cream, pan masala, or tobacco
• A person making inter-state supplies
• A casual taxable person or a non-resident taxable person
• Businesses which supply goods through an e-commerce operator (changed by present decision)

What are the advantages of a Composition Scheme?

The following are the advantages of registering under composition scheme:

• Lesser compliance (returns, maintaining books of record, issuance of invoices)
• Limited tax liability
• High liquidity as taxes are at a lower rate

What are the disadvantages of a Composition Scheme?

• A limited territory of business. The dealer is barred from carrying out inter-state transactions
• No Input Tax Credit available to composition dealers
• The taxpayer will not be eligible to supply non-taxable goods under GST such as alcohol and goods through an e-commerce portal.