Benefits of Composition Scheme

By Registrationwala

11th August 2017


Under the GST regime, the compliance requirement has been increased immensely. As now the taxpayers are required to file three monthly GST returns along with one annual return. Also, the input tax credit of the tax paid on output can be availed only when the taxpayer will file proper returns. This is a big concern for the taxpayers.

The small business units are not fully equipped with the technological and professional requirements of GST. Thus to assist the small business units in adjusting with the new regime a composition scheme was introduced. As per the composition scheme, any taxpayer whose average annual turnover does not exceed Rs 50 lakhs in north eastern states and 75 lakhs in other states can opt for the composition scheme. The composite taxpayer will be liable to pay tax at fixed tax rate of the total sales turnover. Further, they will be required to file only quarterly returns. However, there are some disadvantages associated with this regime like no input tax credit is available for them and dealers carrying inter-state state cannot opt for this scheme.

Benefits of Composition Scheme

1. Fewer compliance requirements- As compared to three monthly returns for regular taxpayers the composite taxpayers are required to file only quarterly returns. Due to this, the small business operators are free from the hectic procedure of monthly filing of returns. Thus, they will be able to concentrate more on their work.

2. Limited tax liability- The composite taxpayers will be required to pay the tax at a nominal rate of tax. The tax rate applicable for composite taxpayer on various supplies is as follows-

•    Manufacturers of all goods other than notified goods- 2%

•    Suppliers of food or drinks for human consumption-  5%

•    Other Supplies- 1% 

  Thus the composite taxpayers will be required to pay tax at a fixed rate and their tax liability will be limited.

3. Higher Liquidity- Higher working capital is the biggest advantage available to the composite taxpayers over the regular taxpayers.  The regular taxpayer will be paying taxes on their outputs at a standard rate and will be enabled to claim any credit of input is available only when his own supplier files a return online which shall reconcile with his own return. This will result in the blockage of the working capital in the form of input credit. However, the taxpayer registered under the composite scheme is required to pay a nominal amount of tax on his output and he does not need to bother about return filing by his supplier. Thus his liquidity will be much higher than the regular taxpayer.

4. Ease of doing business- The compliances requirements for the composite taxpayer is very minimal as compared to regular taxpayers. Also, a low rate of tax is levied upon them. This will help the small businesses to concentrate on their work and flourish.

5. Competitive Edge- Due to the applicability of lower tax rate and less compliance requirement the profit margin of a supplier in composition scheme is more than a large taxpayer, thus such supplier can outplay the economies of scale of large enterprises by offering competitive prices and have a better hold on the local market of supply. Therefore, the composite taxpayers carrying out intrastate transactions will get a competitive advantage.  


Benefits of Composition Scheme