The introduction of Good and Services Tax embraces all manner of businesses with the sole objective of putting in place robust tax compliance and boost the revenues of the government.
Unlike the previous taxation policy, which had 17 tax components to comply with, the Goods and Services Tax has subsumed those indirect taxes under one umbrella. It’s a game-changer for the government to broaden its scope of tax compliance network.
However, GST is a compliance norm and an interface of many features and characteristics. Because the GST is complex in nature, many small and medium-scale enterprises are likely to find the rules of taxation difficult and stressful to comply with.
If you are struggling to understand the rules of the indirect tax reform, you can apply for the GST composition scheme for some peace of mind.
What Is GST Composition Scheme?
The duty of any tax administration is the prompt recovery of taxes, filing returns, invoicing, reporting, record keeping, etc. Big industries have the resources and expertise to facilitate change in the business environment. However, it’s the small businesses that experience hardship to comply with the transition.
The GST composition scheme was introduced in the hopes of reducing the burden and ensure compliance from small business owners. It permits a business owner to pay GST at an applicable minimum rate on a yearly turnover of up to Rs 1.5 crore.
However, there is a section of taxpayers who cannot opt for the composition scheme, and this scheme certainly has its set of merits and demerits.
Rules Of GST Composition Scheme
The GST Act permits a range of big and small businesses across manufacturing and services sectors viz., restaurants, traders, etc. to register under the composition scheme. However, the scheme does not apply to the following persons and entities:
- A non-resident taxable person or an occasional taxpayer
- e-Commerce portals that supply goods via their supply chain operators who collect tax at source (u/s 52)
- Individuals/ businesses that are engaged in inter-state supply of goods
- Ice cream manufacturers with/without cocoa as an additive
- Manufacturer of tobacco products and substitutes
- Businesses/individuals who have done sale transactions with unregistered suppliers, unless GST is paid on such goods on a reverse charge basis, i.e., it has to be paid by the receiver
- Suppliers who are engaged in the supply of goods that are exempt under the scope of the GST Act
It’s also important to note that, as per the current rules of the GST composition scheme, registered individuals and businesses are not permitted to sell goods and services outside the state. They can only procure goods or services from outside the state.
GST Composition Scheme Limit
The scheme limit under GST depends on the nature of the business activity.
Manufacturers And Traders:
If it is a new business registration, your turnover must not exceed Rs 1.5 crore in the current fiscal year.
If the business has been registered already, then the previous financial year’s turnover is considered, which must not exceed Rs 1.5 crore.
Restaurants Not Serving Alcohol:
This type of restaurant will follow the same terms as above.
If it is a new business registration, your turnover must not exceed Rs 50 lakhs in the current fiscal year.
If the business is already registered, then the previous financial year’s turnover is considered, which must not exceed Rs 50 lakhs.
Special Category States – North-East India:
Businesses and service providers from the North-Eastern states of India will have a turnover cap pegged at Rs 75 lakhs per annum.
Further, in case the turnover exceeds the composition scheme limit in a financial year, you will be required to convert to the prevailing GST payment mechanism in order to comply, as per the gst composition scheme rules.
GST Rates Under The Composition Scheme
Currently, the rate is anywhere between 1% to 6% for business enterprises and individuals who are registered under the composition scheme. However, it is subject to the nature of the business activity carried out by the business owner.
Under the GST composition scheme, the rate features and equal split are as follows:
- 1% GST= 0.5% CGST + 0.5% SGST/UGST
- 6% GST= 3% SGST/UGST + 3% CGST
The current rates of GST under the composition scheme are as follows:
- 1% => of business turnover- for traders and other suppliers who are eligible for composition scheme registration
- 2% => of business turnover- for manufacturers who are not eligible for GST composition scheme
- 5% => of business turnover- for restaurant services
- 6% => of business turnover- for other kinds of businesses that provide mixed nature of services (other than restaurant services)
EmSigner for GST
Over the years, businesses, finance professionals, government, and statutory organisations have begun to adopt and accept digital signatures on official paperwork. Digital signatures are foolproof, secure, and lend authenticity to the documents. These digital signatures are encrypted and tagged with a certified electronic ID, which is issued by a certifying authority.
emSigner is a web-based application tool that can be used for the digital signing of GST documents viz., GST registration application, GST returns, etc. on the GST common portal.
To obtain a digital signature, you will need to apply and obtain a Digital Signature Certificate (DSC) from an accredited certifying authority. After receipt of the DSC, you would need to install em signer for gst to sign documents in a digitised format.
This application tool can be downloaded directly from the GST portal itself. It is safe to use and does not leave a digital footprint on servers. It is supported on web browsers such as Chrome, Firefox, Opera, and Safari.
India is now a ‘one tax, one nation’ which is on par with other nations who have adopted GST as a simplified form of taxation. However, in the world of tax compliance, the first introduction to GST has led to some resistance and confusion among entrepreneurs.
The GST composition scheme has reduced and eliminated the burden of liaisoning with statutory authorities, avoiding delays, and corruption. Moreover, the scheme has brought in the transparency of interaction, no-frills accounting, and reporting.
All in all, the convergence of technology with people and processes has made the implementation of GST a nationwide success.