The Composition Scheme under GST:

The Composition Scheme is a simplified tax payment mechanism under GST, designed for small taxpayers to reduce their compliance burden. It allows eligible taxpayers to pay tax at a fixed rate on their turnover instead of maintaining detailed accounting records and filing regular GST returns.

Eligibility for Composition Scheme:

To qualify for the Composition Scheme, a taxpayer must meet the following criteria:

• Turnover Limit: The annual turnover should not exceed Rs. 1.5 crore.
• Nature of Supplies: The taxpayer must not engage in:
  • Interstate supplies
  • Supplies of specific goods and services, such as alcoholic beverages, petroleum products, and tobacco.

Tax Rates under Composition Scheme:

The tax rates vary based on the type of business:

• Manufacturers: 5% of turnover
• Traders: 3% of turnover
• Restaurants: 5% of turnover

Benefits of Composition Scheme:

1. Reduced Compliance Burden: No need for detailed accounting records or regular GST returns.
2. Fixed Tax Rate: Simplified tax calculations as businesses pay a fixed rate on turnover.
3. Lower Tax Liability: The tax rates are generally lower than the standard GST rates, reducing the overall tax liability.

Limitations of Composition Scheme:

1. Turnover Limit: The annual turnover cannot exceed Rs. 1.5 crore. Exceeding this limit will require the business to exit the scheme.
2. No Input Tax Credit (ITC): Taxpayers under this scheme cannot claim ITC on taxes paid on purchases, which may increase the cost of goods sold.
3. Interstate Supplies: Businesses under the Composition Scheme cannot make interstate supplies.

Key Takeaways:

• The Composition Scheme is ideal for small businesses with limited turnover.
• It simplifies compliance but has certain restrictions on the types of supplies and claiming ITC.
• Businesses opting for this scheme need to stay within the turnover limits to maintain eligibility.