i. Goods and Services Tax is set to bring along a new regime of business compliance in India.
ii. Large organizations have the requisite resources and expertise to address these requirements.
iii. On the flip side, many startups and Small and Medium Enterprises (SMEs) may struggle to comply with these provisions.
iv. To resolve such scenarios, the government has introduced Composition Scheme under GST.
v. About the Scheme
- Businesses dealing only in goods.
- Service providers cannot opt for this scheme. However restaurant sector can opt.
- Turnover of preceding FY do not exceed 75 Lakhs.
- available only for intra-state supplies.
Rates, ITC and other salient features of the scheme :
- Not required to maintain detailed records.
- Not allowed to avail input tax credit of GST paid to supplier.
- Cannot issue tax invoice, thus cannot pass ITC.
- Required to furnish only one return i.e. GSTR-4 on a quarterly basis and an annual return in FORM GSTR-9A.
Other Relevant Notes:
Reverse Charge Mechanism:
Composition dealer can enter into a transaction with an unregistered dealer but, the moment he enters into such a transaction, Reverse Charge Mechanism (RCM) shall be triggered and the composition dealer will be required to pay appropriate GST on that transaction even though the transaction was with an unregistered dealer.
If the tax administration has reason to believe that a composition dealer has wrongly availed the benefit under the composition scheme, then such a person shall be liable to pay all the taxes which he would have paid under the normal scheme. Also, he will be liable to pay a penalty equivalent to an amount of tax payable .This penalty will not be levied without giving a show cause notice to the dealer.
Biggest Confusion - Whether small dealers should opt for this scheme or not :
1. Always do cost benefit analysis before taking this decision.
2. Savings in
- compliance cost
- hassle of filing 3 returns every month.
- record maintenance burden.
3. Other major benefit of this scheme is high liquidity. Under normal scheme- large chunk of working capital will remain blocked in form of ITC.
4. On the other hand, you are foregoing your ITC and paying Tax on annual turnover from your own pocket- heavy cost burden.
5. Barred from carrying out inter-state transactions.
Thus, after proper analysis one should take decision whether or not to opt for the scheme.