The introduction of India’s Goods and Service Tax (GST), governed by the Goods and Service Tax Act, includes many procedures that need to be followed which has resulted in some problems for smaller businesses who are struggling with the complexities and structure of the scheme. The scheme is not so much of a problem for the bigger businesses that have trained specialist tax staff on their payroll to deal with the process. With this scheme the aggregate meaning is an important factor.
In an effort to eradicate the problems, and create a greater aggregate meaning understanding for all parties, the Government has introduced the GST Composition Scheme which as mentioned above is controlled by the Goods and Service Tax Act.
TURNOVER LIMIT
The key to composition schemes eligibility depends on the ‘Turnover Limit’ of each business, the aggregate meaning, and this limit has been subject to many changes.
The composition scheme, like many new ideas and legislation, does have some things going for it and some things going against it. What we will try to piece together the good and not so good points related to the make-up of the scheme.
COMPOSITION SCHEME TURNOVER LIMITS
There have been some swift changes to the aggregate meaning turnover limits that have resulted from meetings of the GST Council.
• 6th October 2017. At the GST Council 22nd Meeting, the committee agreed to increase the turnover limit/aggregate meaning from INR seventy-five (75) Lakhs to INR one (1) crore.
• 10th November 2017. At the GST Council 23rd Meeting, the committee overturned that decision and came up with a new turnover limit/aggregate meaning when they increased it from INR one (1) Crore to INR one point five (1.5) Crore.
TO OPT-IN OR OPT-OUT?
To opt-in or opt-out of the composition scheme is entirely down to the taxpayer. Taxpayers have to make that decision, consider the aggregate meaning, and they have to decide how much the scheme can benefit their individual business. Do they see an opportunity for their business to use the scheme in such a way that it will create an aggregate meaning win-win result? The answer to this question is yes and no as to opt-in for this scheme does create advantages and disadvantages.
COMPOSITION SCHEME ADVANTAGES
REDUCED COMPLIANCE
This is, without doubt, a major and one of the biggest advantages for opting in for the composition scheme. This means there are fewer processes and procedures that your business has to follow which obviously means a reduced amount of work to be completed, and filed, as well as fewer opportunities for process errors.
With any new process, such as the recent introduction of the new GST taxation law, it will take time to bed in. People need time to understand so completing and submitting the GST returns correctly will consume more of the taxpayers time. This will be reduced, in time, with greater aggregate meaning understanding and experience of the composition scheme.
RETURN REQUIREMENTS
• Four (4) quarterly returns are required from businesses that opt-in and register for the composition scheme. The form for this submission is called a GSTR 4
• One (1) annual return is required. The form for this submission is called a GSTR 9A
Note: An interesting point for taxpayers opting in for the composition scheme. There is no requirement for maintaining full accounts.
For those opting out: The regular registered requirement is for monthly returns with a year-end additional return.
REDUCED TAX
• Another benefit for taxpayers to opt-in and register for the GST composition scheme is reduced tax rates. The Government has a predetermined set of special separate rates specifically for taxpayers who opt-in to the composition scheme. These rates are reduced, quite significantly, to the regular GST rates.
Category of Composition Tax Rate
Scheme Dealer
Manufacturer and Traders 1% of Turnover
Restaurants no serving alcohol 5% of Turnover
LESS TAX – MORE MONEY TO PLAY WITH
• Having reduced their tax burden, and their accrual for money held to pay taxes by opting for the composition scheme means that the business has more money to play with. This saving might result in expansion opportunities for the business.
COMPOSITION SCHEME DISADVANTAGES
SALES ARE NOT PERMITTED OUTSIDE THE REGISTERED STATE OF THE TAXPAYER.
Without a doubt, the biggest disadvantage for a business opting in for the composition scheme is that their sales options are limited to the state they are registered in as no inter-state sales are permitted. Taxpayers who do business outside the state they are registered in can’t opt-in for the composition scheme. This obviously creates a restraint of trade for the taxpayer. They might enjoy the benefits of paying less tax, and the option to expand their business, but they have to consider the limitations of this expansion which means no Inter-State sales.
This same rule applies to the export of goods. Taxpayers who opt-in for the composition scheme can’t obviously export goods as they will be breaching the inter-state GST rule.
NO OPPORTUNITIES TO APPLY FOR TAX CREDITS
For taxpayers who opt-in for the composition scheme the procedure to apply for input tax credits is no longer available.
One of the main reasons for the conception of the Goods and Service Act is to try and eradicate the flow of double taxation. The double dipping mentality which costs the government a lot of money.
However, this segment of the composition scheme is a big negative for businesses who do have a legitimate claim for input tax credits. But if both taxpayers in the same credit transaction (the seller and the supplier) are in the same state and have both opted in for the composition scheme, then neither can apply for the tax credit.
HOW TAX IS PAID FOR BUSINESSES WHO OPT-IN FOR THE COMPOSITION SCHEME
The seller is not permitted to invoice the buyer for his good or services with tax. The invoice must not include any tax. For tax purposes, the invoice is exempt from tax. With the composition scheme, the tax is paid only by the taxpayer. The taxpayer is totally responsible.
SERVICE PROVIDERS ARE NOT INCLUDED – EXCEPT FOR RESTAURANTS AND RESTAURANT RELATED SERVICES
Services, other than restaurants and restaurant related services, are not permitted to opt-in for the composition scheme. Taxpayers engaged in the aggregate meaning service industry, with the exception of restaurants and restaurant related services, have not been included in the composition scheme and these taxpayers, who provide taxable services, are excluded from any benefits applicable to the scheme.
NOT THE BEST OPTION FOR GENERAL INDIVIDUAL REGISTRATION
The composition scheme is not generally the best option for general individual registrations. There is the big disadvantage factor with no process, or availability, for input tax credits with the composition scheme. This is something that has been explained before and a reason why a general individual might well decide to make purchases from businesses who have not opted in for the composition scheme. Price distortions might also come into play where the sellers’, might increase their prices’, to try and offset some kind of loss by a potential problem related to the unavailable situation with input tax credits and the aggregate meaning.
SUPPLY OF EXEMPT GOODS – OUTSIDE SCOPE
For any taxpayers who connected with the supply of goods or services that are exempt from tax, goods sold with a zero tax rate, the composition scheme does not apply. These taxpayers can’t opt-in as this type of business is outside the scope of the composition scheme and aggregate meaning.
SUPPLY OF GOOD THROUGH E-COMMERCE PORTAL – ARE NOT ELIGIBLE
E-commerce portal suppliers of goods taxpayers also can’t opt-in for the composition scheme.
Note: If you have any questions about this article, or require any assistance, please contact Company Vakil
