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Composition Scheme

Composition Scheme under GST: A Simplified Scheme for Small Taxpayers

The Composition Scheme is a simplified tax scheme under GST designed to reduce the compliance burden on small taxpayers. It allows eligible businesses to pay GST at a lower rate with fewer formalities.

What is the Composition Scheme?

The Composition Scheme is an optional scheme available to eligible taxpayers. Under this scheme, businesses pay a fixed percentage of their turnover as GST, instead of calculating GST on individual transactions. They also benefit from reduced compliance requirements, such as simpler return filing and less paperwork.

Eligibility for the Composition Scheme

To be eligible for the Composition Scheme, a taxpayer must meet the following conditions:

  • Aggregate Turnover: The aggregate turnover should not exceed ₹1.5 crore (₹75 lakhs for special category states).
  • Nature of Supply: The taxpayer should not be engaged in the supply of certain goods, such as ice cream, pan masala, and tobacco.
  • Inter-State Supply: The taxpayer should not be engaged in inter-state supply of goods.
  • Other Conditions: The taxpayer should not be a casual taxable person or a non-resident taxable person.

Benefits of the Composition Scheme

  • Lower Tax Rates: Businesses under the Composition Scheme pay GST at a fixed percentage of their turnover, which is generally lower than the regular GST rates.
  • Simplified Compliance: The compliance requirements are simpler, with fewer returns to file and less detailed record-keeping.
  • Reduced Paperwork: Businesses need to maintain fewer records and file simpler returns, reducing the paperwork burden.
  • Ease of Doing Business: The scheme makes it easier for small businesses to comply with GST regulations, promoting ease of doing business.

Compliance Requirements

While the Composition Scheme offers simplified compliance, businesses still need to fulfill certain obligations:

  • Registration: Businesses need to specifically register under the Composition Scheme.
  • Return Filing: Businesses need to file quarterly returns, instead of monthly returns.
  • Invoicing: Businesses cannot issue tax invoices. They need to issue bill of supply instead.
  • Restrictions: Businesses cannot claim input tax credit, make inter-state supplies, or supply exempt goods.

Is the Composition Scheme Right for Your Business?

The Composition Scheme can be beneficial for small businesses with lower turnovers, as it simplifies compliance and reduces the tax burden. However, businesses should carefully consider the restrictions and limitations before opting for this scheme. If a business makes inter-state supplies, needs to claim input tax credit, or deals in goods not eligible for the scheme, then the Composition Scheme might not be suitable.

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