2018-08-08 01:14:03Finance and Accounting: TaxesEnglishTo help small business owners, government created GST composition scheme. If your company is eligible, use the scheme to enjoy easy,...https://quickbooks.intuit.com/in/resources/in_qrc/uploads/2018/08/business-owner-reviews-GST-composition-scheme-eligibility.jpghttps://quickbooks.intuit.com/in/resources/finance-and-accounting-taxes/gst-composition-scheme-everything-you-need-to-know/GST Composition Scheme: Everything you need to know

GST Composition Scheme: Everything you need to know

3 min read

The goods and services tax law did away with complex state and central taxes. GST also brought in more complicated compliance requirements, which can be a burden for your small business. To help, the government created the GST composition scheme. If your company is eligible, you can use the scheme to enjoy easy, hassle-free tax filing.

Aggregate Turnover Limits

Your company’s aggregate turnover is the main qualifying factor for the GST composition scheme. GST law says that as long as you’re registered for GST and your aggregate turnover is not greater than Rs 1.5 crore in case of goods and Rs 50 Lakhs in case of services during the financial year, you are eligible for the composition scheme. If your business operates in a special category state other than Jammu and Kashmir and Uttarakhand, the limit for the same is still pending, following the 32nd GST council meeting.

Since aggregate turnover is so important, it’s a good idea to know what to include. Your company’s aggregate turnover is the total value of all of the sales that are made under your permanent account number. This includes sales of goods that are:

  • Taxable
  • Exempt from GST
  • Exports
  • Interstate

When you’re adding the value of these sales, you do not have to include the taxes and cess you paid for them. In addition, you should not include the value of things you buy, even when you have to pay tax on a reverse charge basis.

Note:

For service providers GST council has introduced a new composition scheme. In order to avail the benefit under the scheme, the threshold turnover limit for service providers is decided to be Rs. 50 lakhs.  As per 32nd GST council meeting, the revised turnover limit for both goods and services will be effective from April 1, 2019.

Also, the Special category States would decide about the Composition Limit  within one week and intimate the respective changes to the Secretariat accordingly.

Exceptions to the Composition Scheme

In most cases, your business will qualify for the composition scheme if you meet the aggregate turnover requirement. There are a few exceptions to that rule, however. You cannot use the qualification scheme if you:

  • make an occasional sale but you don’t have a fixed place of business
  • are not a resident of India
  • are into selling services other than restaurant services
  • sell goods across state lines
  • are selling goods that don’t fall under the authority of the GST law, such as alcohol or petroleum products
  • selling through an Electric Commerce Operator that has to collect tax at the source as required by Section 52 of the CGST Act
  • purchase goods from an unregistered business and pay the tax on them using the reverse charge mechanism

Manufacturers That Are Not Eligible for the Composition Scheme

The GST law also says that certain manufacturers cannot participate in the composition scheme. If you manufactured any of the goods that are notified under Section 10(2)(e) of the CGST Act in 2016 or later, your company isn’t eligible for the composition scheme. Goods that are included in this part of the law are:

  • Ice cream and edible ices, even those that contain cocoa
  • Pan masala
  • Tobacco
  • Manufactured tobacco substitutes

When Does Eligibility End?

It’s normal for aggregate turnover to change as you grow your business. When your turnover rises above the composition scheme limits, you’re no longer able to take part in the scheme. At this point, you can simply switch to the standard GST filing method.

While your company is eligible, the composition scheme can save a great deal of time. By monitoring your aggregate turnover closely, you can ensure that your company files correctly and stays GST compliant.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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