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GST Composition Levy for Small Businesses

Understanding GST Composition Levy

GST is believed to bring along a new regime of business compliance in India. While the large organizations have the required resources and expertise to address these requisites, many small businesses such as local dealers mostly engaged in direct consumer selling may struggle to abide by these provisions. To avoid such situations, the government has introduced a Composition scheme which is known as ‘Composition Levy.’

Under this scheme, a Composite Tax Payer is liable to pay taxes only at a certain percentage of its turnover. The return filing process is on quarterly basis for them and they have an option of not having to maintain detailed records pertaining to tax invoicing rules. However, they are prohibited from taking Input Tax Credit (ITC) and are not even allowed to collect tax on sales.

The main purpose of this scheme is to safeguard the interests of small businesses and it is beneficial in every respect to small suppliers, intra-state local suppliers and restaurant sector as it prevents them from various compliances.

A simplistic comparison between a regular tax payer and Composite Tax Payer is as follows

Persons eligible to opt for Composition Levy Scheme in GST regime

  • For North East India, Sikkim, Himachal Pradesh and Uttarakhand – An aggregate turnover of the person having same PAN of above ₹ 10 lakhs during the previous financial year but does not exceed ₹ 50 lakhs.
  • While for the rest of India – An aggregate turnover of the person having same PAN of above ₹ 20 lakhs during the previous financial year but does not exceed ₹ 50 lakhs.

Persons NOT eligible to opt for Composition Scheme

  • A Supplier of goods through an e-commerce operator
  • A Supplier of goods that are non-taxable under GST. (example: fresh meat, milk, fresh fruits and vegetables)
  • A supplier engaged in manufacturing and making supply of specific notified goods
  • A supplier engaged in interstate outward supply of goods and services.

Composition Tax Rate

Return Forms for a Composite Tax Payer

As mentioned in this article earlier the return filing process for a composite tax payer is usually on quarterly and annual basis. Types of returns and details to be furnished are explained below:

 

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