Composition Scheme

Composition Scheme

Subject: Economy

Context: The Goods and Services Tax (GST) Council is likely to consider a ministerial group’s report on introducing a differentiated regime for sectors where tax evasion is very high, such as brick kilns, sand mining, and gutkha and pan masala production, even as experts have urged caution about such carve-outs.

Concept:

• Tax evasion is high in the sectors such as brick kilns, sand mining, and gutkha and pan masala production, for instance, ₹830 crore of evasion was detected at a single pan masala unit earlier this year.
• The 7-member GoM, is tasked with examining the feasibility of a capacity-based tax regime and other alternatives to plug tax leakages.

Composition Scheme

• Taxpayers under the composition scheme of the GST will now 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.
• 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 %age of turnovers every quarter, instead of paying tax at a normal rate every month.

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.
• Businesses with inter-State supplies, manufacturers of ice cream, pan masala and tobacco, and e-commerce players cannot opt for the composition scheme.

Importance

• The composition scheme effectively acknowledges the importance of the MSME sector, by granting relief to it on GST filings, procedures and tax rates.