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Returns under composition scheme have new surprises. Let us unlock these surprises here for you :

It was no less than a shocker when a representative from the GST Council mentioned in a press meet that returns filed by companies opting for the GST composition scheme has left the government surprised as 5 lakh companies reported such a turnover which works out to annual sales of Rs 5 lakh only. Investigating the present scenario a doubt comes when an annual turnover of the company itself is just 5 lakhs below the  statutory limit for registration then where the government has went wrong in identifying these gray patches which are disturbing the GST implementation on a whole.

It is worth mentioning to remind that basic exemption limit for Registration is 20 lacs in an annum., but the facts are totally disturbing when we have a look at them. The statistics at your end.

Mean Population of : 10 Lakhs businesses opted for Composition Scheme and now let us see how adversely the statistics have affected the governments sentiments. But reports says that around 51% of economy comprises of SMEs.

Surprise No. 1

Only 7 lakhs businesses have filed their GST Composition Return

Surprise No. 2

Of which 5 lakh people had filed such return for the quarter which results into annual turnover of less than Rs 5 lakh.

And the government to ease the compliances for Small and medium sized enterprises increased the threshold limit for opting GST Composition scheme to Rs 1.5 Crore this was the surprise to the government itself when they indexed these statistics with the decision they took in GST council meeting to increase the threshold limit for opting composition scheme. But the intention was right to bring more small taxpayers into GST net but the stats that came out were totally different.

Let us know first know what is composition scheme. The GST Composition scheme under the law is for small businesses. This is to bring relief to small businesses so that they need not be burdened with the compliance provisions under the law. And for them, this option has been provided where they can opt to pay a fixed percentage of turnover as fees in lieu of tax and be relieved from the detailed compliance of the provisions of law.

So are we talking about any conditions to avail this scheme? Yes to avail this composition scheme, businesses have to comply with certain conditions. They are

  • The person opting for composition levy should be a registered person.
  • Aggregate turnover of registered person in the preceding Financial Year should not exceed Rs.75  Lakhs
  • Following class of registered persons would not be entitled to opt for Composition  Levy in lieu of Tax payable by them:
  •  Person engaged in supply of services other than supplies referred in the Act. Therefore, person engaged in supply of services would not be eligible to opt for composition levy except for person engaged in supply of food for human consumption.
  • Person making any supply of goods which are not leviable to tax under this Act. At present following goods are not leviable to tax under this Act: The list runs as follows Petroleum Crude, high speed diesel, motor spirit, natural gas, aviation turbine fuel, and alcohol for human consumption
  • Person making any inter-State outward supplies of goods.
  • Person making any supply of goods through an electronic commerce operator who is required to collect tax at source
  • Person who is a manufacturer of such goods as may be notified by the Government on the recommendation of the Council.

If a business complies with all these conditions then it can opt for composition scheme and pay taxes at flat rates on the turnover achieved by it. It is 1% of the turnover in State or turnover in Union Territory in case of a manufacturer, and also 1% of the turnover in State or turnover in Union Territory in case of persons engaged in making supplies. (Recent amendment). Note : Persons engaged in supplies also includes registered persons making supply of food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption. For e.g. Restaurants or Hotels.

Despite of these varied amendments granting benefits SMEs by increasing the threshold limit and also in lowering of the tax rates for composition scheme this sector has not generated enough revenue under GST. What could be the probable mishaps which one relate to for such failure.

Reason No. 1

Awareness and confusion among the people at ground zero for filing of returns on the due dates

Reason No. 2

Oversight of registration as normal tax payer having no absolute knowledge of the basic exemption limit or the conditions which he must satisfy before applying for GST Composition scheme

Reason No. 3

No media outreach programmes to educate the businesses about the benefits of this composition scheme for them or to educate them about this scheme under GST.

Reason No. 4

Under Composition scheme before amendment the tax payers were asked to pay tax on the aggregate turnover which included Exempted goods turnover as well. This probably might not have uninspired tax payers from paying taxes on their exempted turnover or even it is possible that the lack of knowledge that even the exempted goods turnover forms part of their aggregate turnover have resulted in lower tax calculations which we are talking about. But the GST Council in its latest meet amended the meaning of aggregate turnover and it excluded or deleted the exempted goods turnover from the aggregate turnover.

Whatever be the reason we can now expect that audits would soon form part of GST owing to poor performances in GST Revenues from September. Here is where a person needs an expert advisor or ERP tools to have GST compliances taken care of. But the other side of the coin also tells that these SMEs cannot afford a GSP or build a infrastructure for seeking through that all the GST compliances are taken care of.

Education being a major hindrance in a country like ours and to understand the GST law is even more difficult for a taxpayer falling under these categories. We need more Goods and Service Tax Suvidha providers to part knowledge on various aspects of GST or to interact with taxpayers, identify them, tell them about the registration procedures, and how the GST law is going to operate on them. What are the returns they are required to file and so on. And we also need community forums which educate the users about the GST law by way of Webinars, debates, discussions just like Tally.ERP 9 has it for the fellow Chartered accountants and users at large. I think the software service providers should put across their promotional marketing campaigns the Question and answers round on topics related to GST and provide the sampling as how many Taxpayers are aware about the GST law this data will help the government in understanding as how far businesses have understood about GST and how has it impacted them.


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