Getting registered under composition scheme is optional and voluntary. Any business which has a turnover less than Rs. 75 Lakh can opt for this scheme but on any given day, if turnover crosses the above-mentioned limit, then he becomes ineligible and has to take registration under the regular scheme. There are certain conditions that need to be fulfilled before opting for composition levy.
They are as follows:
- Any assessee who only deals in supply of goods can opt for this scheme that means this provision is not applicable for service providers. However, restaurant service providers are excluded.
- There should not be any interstate supply of goods that means businesses having only intra state supply of goods are eligible.
- Any dealer who is supplying goods through electronic commerce operator will be barred from being registered under composition scheme. For example: If Y sells its products through any online company such as Amazon or snapdeal who are Electronic Commerce Operator then Y cannot eligible for composition scheme.
- Composition scheme is levied for all business verticals with the same PAN. A taxable person will not have the option to select composition scheme for one, opt to pay taxes for other. For example, A taxable person has the following Business verticals separately registered – Sale of footwear, the sale of mobiles, Franchisee of McDonald’s. Here the composition scheme will be available to all 3 business verticals.
- Dealers are not allowed to collect composition tax from the recipient of supplies, and neither are they allowed to take Input Tax Credit.
- If the person is not eligible under composition scheme, tax liability shall be TAX + Interest and penalty which shall be equal to the amount of tax.Dealers who collect Tax at source u/s 56.
Benefits of Registering under GST Composition Scheme
- Below are some of the prominent reasons why you should choose to get registered as a supplier under the composition scheme:
- Limited Compliance: Under the composition scheme, the taxpayer is required to furnish quarterly return only, and thus he need not worry on record keeping and can focus on his business more rather than being occupied in compliance procedures.
- Limited Tax Liability : Another benefit of getting registered under the composition scheme is that the tax rate for such taxpayer is nominal under the GST Law.
Limitations of GST Composition Scheme
There are some of the limitations that every business owner must be aware of:
- No Credit of Input Tax
Any dealer registered under Composition Scheme will not be eligible to take credit of Input Tax credit on purchases. Also, the buyer of those goods will not get the credit of taxes paid.
- No Inter-state business
The major drawback of this scheme is that the assessee cannot deal in interstate transactions or affect import – export of goods and services. He is barred from performing such actions which limit his territory for expansion and can only conduct local or intra state transactions.
- Pay tax from own pocket
Since the dealer is not allowed to charge tax from his buyer, despite the rate being very low, he has to pay out of his own pocket. He is not even allowed to issue a tax invoice, resulting the burden on the assessee to pay tax.
- Strict Penal provisions
Utmost care is required while taking benefit of composition levy under GST regime as the penal provisions are quite severe. If by any chance, it is proved that the assessee is wrongly registered under this scheme, not fulfilling the required criteria and thereby avoiding taxes will face bad consequences. He will be then be asked to pay taxes along with penalty, which is equal to 100% of taxes put on him.