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GST Registration Composite Dealer 2018-10-23T11:01:36+00:00

GST Registration Composite Dealer

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GST Registration Composite Dealer

GST or Goods and Service Tax has come across a new hero in taxation with an upliftment of the tax system as well as heavy benefits associated with it. The taxation system grew substantially since the implementation of GST by making a unified tax regime consuming approximately 17 taxes under one tax system. Previously, multiple taxes were implemented such as Service Tax, VAT, Excise etc causing a confused consumer practice and sometimes over taxation. GST allows magnified revenues for the government as the tax is uniformly applied to every assessee running the business with a few exceptions. In order to abolish confusions both central and state taxes (CGST and SGST) will be levied for the purchase of goods or services. GST overall has introduced a unique regime in business compliance. GST introduction has taken care of all kind of business organizations. As bigger organizations have the necessary resources and expertise to fulfill the compliance effortlessly, while small and medium enterprises (SMEs) and start-ups may struggle in fulfilling the compliance, therefore, to help these small businesses, GST law has initiated a GST composite scheme where the provision of tax payment at a minimum rate is installed for the assessees in accordance with their turnover. This seems equivalent to the regimes of VAT law.

Our expert at unfolding tax will be happy to advise you to GST Composition Scheme.

Eligibility For GST Composition Scheme

Getting registered under GST Composition Scheme is optional and voluntary. Any business which has a turnover less than Rs.50 Lakh can opt for this scheme but on any given day, if turnover crosses the above-mentioned limit, then he becomes ineligible and has to take registration under the regular scheme. There are certain conditions that need to be fulfilled before opting for composition levy.

They are as follows:

  • Any assessee who only deals in supply of goods can opt for GST composition Scheme that means this provision is not applicable for service providers. However, restaurant service providers are excluded.

  • There should not be any interstate supply of goods that means businesses having only intra state supply of goods are eligible.

  • Any dealer who is supplying goods through electronic commerce operator will be barred from being registered under GST composition Scheme. For example: If M/s ABC sells its products through Flipkart or Amazon (Electronic Commerce Operator), then M/s. ABC cannot opt for composition scheme.

  • GST composition Scheme is levied for all business verticals with the same PAN. A taxable person will not have the option to select composition scheme for one, opt to pay taxes for other. For example, A taxable person has the following Business verticals separately registered – Sale of footwear, the sale of mobiles, Franchisee of McDonald’s. Here the composition scheme will be available to all 3 business verticals.

  • Dealers are not allowed to collect composition tax from the recipient of supplies, and neither are they allowed to take Input Tax Credit.

  • If the person is not eligible under GST composition Scheme, tax liability shall be TAX + Interest and penalty which shall be equal to the amount of tax.

  • Dealers who collect Tax at source u/s 56.

Benefits Under GST Composition Scheme

Less Compliance
Under the normal scenario, a taxpayer under GST has to file minimum 3 returns monthly and one annual return. To be precise, he is compelled to file 37 returns in a year or penalty will be levied for non-compliance. For small suppliers and manufacturers, it is quite difficult to maintain so detailed books of accounts on a daily basis and record every transaction with supporting documents.

Whereas, in GST composition scheme, only a quarterly return will be uploaded under GSTR-4 by:

  • 18th July – 1st quarter
  • 18th October – 2nd quarter
  • 18th January – 3rd quarter
  • 18th April – 4th quarter

This will ease the compliance burden for SMEs, and they can focus more on their business rather than getting occupied in compliance procedures.

Reduced tax liability
Another advantage of being registered with composition scheme is the rate structure. The rate is 1% for manufacturers, 2.5% for restaurant service providers, 0.5% for other suppliers of turnover. This can be more justified with the following example.

Particulars Description Registered as Normal Tax Payer Description Registered as a Taxpayer under composition scheme
A Total Sales Value 118000 Total Sales Value 118000
B Sales Value exclusive of taxes 100000 Sales Value exclusive of taxes 115686
C GST @ 18% on sales value 18000 GST @ 2% on sales value 2314*
D Input Purchases 65000 Input Purchases 65000
E GST @ 18% 11700 GST @ 18% 11700
F Total Purchase Value (D+E) 76700 Total Purchase Value (D+E) 76700
G Net GST Liability (C–E) 6300 Net GST Liability (C–E) 2314
H Net Profit {A-(F+G)} 35000 Net Profit {A-(F+G)} 38986

*In composition scheme, a supplier is ineligible to collect tax separately from the buyer in an invoice. The above illustration is for the basic understanding of the composite scheme.

High Liquidity
For normal taxpayers, most of his working capital will be blocked as Input Tax credit because he can avail the input only if his supplier has filed the return. The supplier has to pay tax at standard rate and credit of the input will only be availed when his supplier files the return. In composition levy, dealer need not worry about his supplier filing return as he cannot take credit and will pay tax at a nominal rate.

For Example: In the above case, a Normal taxpayer will have to pay a higher tax of Rs. 6300/- compared to Rs.2314/- and Input Tax credit of Rs. 11700/- will also be blocked till his supplier files the return. Whereas, the composition scheme tax payer, will only pay Rs. 2314.

Transitional Provisions

Any taxpayer who is in GST Composite Scheme under current regime and transits to Regular Taxation under GST will be allowed to take the credit of Input, semi-finished goods and finished goods on the day immediately preceding the date from which they opt to be taxed as a regular tax payer.

The inputs can only be availed subject to few conditions such as

  • Those inputs or goods are meant for making taxable outward supplies under GST provisions.

  • The dealer taking the Input Credit was eligible under the previous regime but could not claim due to registered under GST Composition Scheme

  • The taxpayer claiming Input credit on goods, those goods should be eligible for such credit under GST regime.

  • The taxpayer must have a valid legal document of input tax credit i.e. he must possess an invoice evidencing taxes or duties have been paid.

  • Those invoices or documents should not be older than 12 months before the appointed date.

When a taxpayer is shifting from a normal scheme to composition scheme, the taxpayer has to pay an amount which shall be equal to the credit of input tax in respect to those inputs which are held as stock on the immediately preceding date from the date of such switchover. Any balance which is left in Input Tax Credit account after such payment, then that balance will lapse and not usable.

Limitations of GST Composition Scheme

There are some of the limitations that every business owner must be aware of:

No Credit of Input Tax
Any dealer registered under GST Composition Scheme will not be eligible to take credit of Input Tax credit on purchases. Also, the buyer of those goods will not get the credit of taxes paid.

No Inter-state business
The major drawback of GST composition Scheme is that the assessee cannot deal in interstate transactions or affect import-export of goods and services. He is barred from performing such actions which limit his territory for expansion and can only conduct local or intra state transactions.

Pay tax from own pocket
Since the dealer is not allowed to charge tax from his buyer, despite the rate being very low, he has to pay out of his own pocket. He is not even allowed to issue a tax invoice, resulting the burden on the assessee to pay tax.

Strict Penal provisions
Utmost care is required while taking benefit of composition levy under GST regime as the penal provisions are quite severe. If by any chance, it is proved that the assessee is wrongly registered under this scheme, not fulfilling the required criteria and thereby avoiding taxes will face bad consequences. He will be then be asked to pay taxes along with penalty, which is equal to 100% of taxes put on him.

GST has the potential to boost revenue for the government, lower the budget deficit, which means more funds will be generated to spend on the welfare of the society and people. There will be always a section of traders, dealers or taxpayers who find it difficult to maintain books of accounts or fulfil the compliance requirements of tax laws. This may happen due to small size of their business or due to the nature of their business. To give benefit to these businesses, GST composition scheme was launched for such small taxpayers.

The GST composition scheme is quite beneficial to small suppliers, intra state local suppliers and restaurant sector as it prevents them from various procedural compliances and gives a hassle free working environment. Today, to make compliances better for small businesses, states have provisions in their VAT law about the composition scheme. Similarly even in GST composition scheme is introduced to safeguard the interests of small businesses. GST composition scheme is introduced to safeguard the interests of small businesses.