Have you Heard of the Term Composition Scheme under GST?
MSME or micro, small and medium enterprises contribute to almost 30% of India’s total GDP. This sector acts as a backbone to our economy, making a significant contribution to India’s manufacturing and service sector. Consequently, over 120 million individuals are employed in this sector.
The GST composition scheme was introduced by the Government of India from 1st April 2019 to encourage these small and medium scale enterprises and to aid them to conduct business with ease. A taxpayer who wishes to opt for GST composition scheme should file GST CMP – 02.
One can easily do this by visiting the portal of Goods and Services Tax, which is GST meaning. This scheme was introduced to benefit the small and medium scale enterprises in doing business.
Benefits of GST composition scheme
Individuals opting for this scheme can avail the following benefits –
- Reduced paperwork – Businesses that opt for this scheme have to file lower tax returns and eliminate tax invoices. Even the compliance in terms of maintaining a book of records is relaxed in case of someone opting for this scheme.
- Low tax liability – Paying tax at a flat rate compared to the original GST meaning goods and services tax amount ensures that small and middle scale entrepreneurs are left with surplus cash. This surplus cash can be invested back in the business to ensure smooth operation.
The GST composition scheme differs from the type of business. For a service provider that has newly opted for this scheme, the annual turnover should not exceed Rs.50 lakh.
However, for manufacturers and traders, including restaurants not serving alcohol, this limit is set at Rs.1.5 crore.
Know all about the GST composition scheme will help entrepreneurs and business owners to consider opting for it.
Furthermore, for an individual carrying out his/her business in the north-eastern states and Himachal Pradesh, the limit cannot exceed Rs.75 lakh. A small scale entrepreneur under this scheme will pay the tax rates applicable to his annual turnover.
Tax rates applicable under GST composition scheme
Under this scheme, firms will be following a fixed tax rate specified for his or her business type –
- Goods manufacturers and traders will be paying tax at the rate of 1%.
- Service providers will pay tax at a rate of 6%.
- Restaurants not serving alcohol are required to pay tax at the rate of 5%.
Since the composition scheme under GST was introduced to simplify the process of filing tax returns, an individual is required to file tax returns only twice a year. GSTR–4 should be filed at the end of every quarter, while GSTR–9A has to be submitted by 31st December of the next financial year.
Even though the GST composition scheme helps save considerably, small business owners can follow several tips to save more tax.
Under GST meaning of composition scheme, an individual is paying tax at a reduced rate. It leads to more surpluses on his or her hand, which they can utilise as a further investment to expand their small and medium scale enterprise.
For instance, they can easily take out a business loan and repay the same comfortably. Financial institutions such as Bajaj Finserv offer such loans to small businesses against minimal eligibility criteria.
These business loans come with an array of features to benefit small entrepreneurs. The company also brings pre-approved offers that make the process of availing finance hassle-free while saving time.
While business loans keep a firm financially healthy, it is necessary for registered units to comply with GST returns diligently. They must learn the due dates of filing respective GSTR forms to avoid any non-compliance.