Composition Scheme under GST: Simplified Compliance for Small Taxpayers

The Goods and Services Tax (GST) in India has introduced a special scheme for small taxpayers, known as the Composition Scheme. Under this scheme, small taxpayers can opt to pay a reduced rate of GST on their turnover, in exchange for a simplified compliance process. The scheme is governed by Section 25 of the GST Act and is available to taxpayers whose aggregate turnover is up to Rs. 1.5 crore (for North-Eastern and hill states) or Rs. 75 Lakh (other states) in the preceding Financial year.

To opt for the Composition Scheme, a taxpayer must file an application in the form CMP-01 within 30 days from the date on which he becomes eligible. Once the application is approved, the taxpayer is required to file quarterly returns in form CMP-08, and pay the GST due on their turnover.

The GST rate for taxpayers under the Composition Scheme is 1% for manufacturers, 2.5% for traders and restaurants, and 0.5% for other suppliers. This rate is significantly lower than the regular GST rates, which can range from 5% to 28%, making the scheme a attractive option for small businesses.

One of the major benefits of the Composition Scheme is that taxpayers are not eligible to claim input tax credit (ITC) on the goods and services they purchase. This means that they can avoid the compliance burden associated with maintaining records of invoices and claiming ITC. However, it is important to note that taxpayers under the Composition Scheme are still required to collect GST from their customers and deposit it to the government.

In summary, the Composition Scheme under Section 25 of the GST Act provides a simplified compliance process and reduced GST rate for small taxpayers. By opting for this scheme, businesses can save time and money on compliance and focus on growing their business. However, businesses should also take into consideration the limitation that they are not eligible to take Input tax credit. It is advisable to consider the business structure, Tax impact and other benefits before opting for this scheme.

Businesses are advised to consult with a tax professional or GST expert to determine the appropriate type of registration for their specific circumstances.