In the vast world of taxes, the term “composition” might sound complex, but its essence is quite straightforward. In the realm of Goods and Services Tax (GST), the composition scheme is a simplified approach for businesses, offering more than just a reduction in payable amounts.
Understanding Composition Scheme under GST
Under the GST legislation, those opting for the composition scheme enjoy certain benefits beyond mere debt reduction. Typically, if goods are taxable at 18%, a registered person is obligated to charge and pay tax at that rate. This involves complex procedures, such as monthly filing of GSTR-3B and quarterly GSTR-1 for businesses with a turnover less than Rs. 1.5 crore. Additionally, detailed maintenance of accounts and records is mandatory, making it quite difficult for a regular dealer.
However, recognizing the challenges faced by small businesses, the government introduced the composition scheme. This scheme grants eligible businesses the following advantages:
- Fixed Percentage Payment: Instead of navigating the complexities of input tax credits, businesses under the composition scheme pay a fixed percentage (e.g., 1%) of their gross turnover.
- Simplified Compliance: The composition scheme eases the burden of compliance by relaxing the requirements for maintaining accounts and records.
- Simple Return Forms: Businesses under this scheme are required to fill out a single return form with minimal information, simplifying the reporting process.
- Quarterly Tax Payment: Unlike the regular 16 returns in a year, businesses in the composition scheme need to file only one return with tax payment on a quarterly basis.
In essence, the composition scheme enables registered businesses with a turnover below a specified threshold to pay a small, fixed percentage of their turnover while enjoying relaxation in compliance requirements.
Goods and Services under Composition Scheme
While there is no distinct separation between composition schemes for goods and services, the terms are commonly used to distinguish between two scenarios:
- Composition Scheme for Supplier of Goods (Effective from July 1, 2017): Initially, the composition scheme primarily targeted suppliers of goods, including those engaged in specific supplies mentioned in Schedule II. At that time, suppliers of services were excluded from opting for this scheme.
- Composition Scheme for Supplier of Services or Mixed Suppliers (Effective from April 1, 2019): Recognizing that suppliers of goods might also provide services, the government introduced a separate composition scheme for service providers or mixed suppliers. This newer scheme, effective from April 1, 2019, aims to accommodate the unique characteristics of service-oriented or mixed businesses.
Important Note
- Individuals opting for the composition scheme under Section 10 of the Act are obligated to annually submit Form GSTR-4. This requirement persists even if there is no business activity during the period.
- A crucial point to note is that if one opts for the composition scheme in one state, this choice becomes mandatory for all other registrations, should they exist. The flexibility to have multiple registrations in different states under the composition scheme is allowed, but the commitment extends uniformly across all registrations. Similarly, if a person decides to withdraw from the composition scheme for any reason, this withdrawal must be applied uniformly across all states. The legislation mandates a consistent approach – if one chooses the composition scheme under Section 10, this choice must apply universally to all states, without the option to selectively adopt the normal scheme for certain registrations.
Conclusion
In conclusion, the composition scheme under GST is a boon for small businesses, offering a simplified approach to tax compliance. By opting for this scheme, businesses can ease their tax-related burdens, enjoy fixed percentage payments, and streamline their reporting processes. Whether dealing in goods, services, or a mix of both, businesses now have tailored composition schemes that cater to their specific needs, making the GST landscape more accessible and manageable for all.
