The composition scheme under GST is a simplified tax regime for small businesses. It is meant to reduce the compliance burden and ease the tax burden for small taxpayers whose turnover is below a certain threshold. This scheme is available to manufacturers, traders, and restaurant owners.
Under the composition scheme, the taxpayer is required to pay tax at a lower rate on the basis of the turnover instead of the regular tax rate. The taxpayer is also required to file quarterly returns instead of monthly returns. However, the taxpayer cannot claim input tax credit under this scheme.
The eligibility criteria for the composition scheme are as follows:
- The taxpayer must be a registered person.
- The taxpayer’s aggregate turnover in the previous financial year must not exceed Rs. 1.5 crores.
- The taxpayer must deal in goods only. Service providers are not eligible for this scheme, except for restaurant owners.
The tax rates under the composition scheme are as follows:
- For manufacturers and traders – 1% of the turnover.
- For restaurant owners – 5% of the turnover.
It is important to note that a taxpayer registered under the composition scheme cannot collect tax from the customers. Therefore, they cannot issue a tax invoice. The taxpayer is required to mention the words “Composition taxable person” on the bill of supply issued by them.
In summary,
the composition scheme is a simplified tax regime for small businesses, where they can pay tax at a lower rate based on their turnover and file quarterly returns. However, they cannot claim input tax credit and are not allowed to collect tax from their customers.
