Registration under the Composition Scheme in GST has its own set of advantages and drawbacks. Based on the situation of the business, the advantages and disadvantages must be carefully assessed to decide whether to opt for composition scheme on GST Portal or not.
Advantages of GST Composition Scheme
- Less Record Keeping
Composite Dealer need not maintain detailed records and accounts. The taxpayer can focus on running a business effectively rather than worrying about accounting and record keeping.
- Less Returns
While other taxpayers need to file monthly returns, a composite dealer needs to make quarterly payment of tax in Form CMP-08 and file an annual return GSTR-4 for a financial year. Thus, the compliance burden is lesser.
- Limited Tax Liability
The tax rate under Composition Scheme is 1%, 2%, 5% or 6% of the turnover which is negligible in comparison to regular dealers who generally pay GST at 5%, 12%, 18% or 28%. However, the regular dealers can claim the Input Tax Credit of GST paid on purchases.
- High Liquidity
A composite dealer has to pay tax at a lesser rate than regular dealers. The payment of tax is to be done every quarter. Thus, there would be an easy flow of funds with high liquidity in the business.
- Competitive Advantage
Under the composition scheme, the dealer cannot collect tax from its customers. Thus, they can sell goods at a lesser price than the competitors who charge GST from the customers.
FY 2019-20 onwards, a Composite Dealer should file GSTR-4 on an annual basis on or before 30th April from the end of the financial year. They should now pay tax on a quarterly basis under Form GST CMP-08. Earlier up to FY 2018-19, GSTR-4 was filed quarterly or before the 18th of the month from the end of a quarter.
The Composition Scheme is a scheme for payment of GST available to small taxpayers whose aggregate turnover in the preceding financial year did not cross the following threshold limit:
a. Sale of Goods and Restaurant Services – Rs. 1.5 Cr for normal category state
b. Sale of Goods and Restaurant Services – Rs. 75 lacs for special category state
c. Sale of Other Services – Rs. 50 lacs
In the case of the following States, the limit of turnover is Rs. 75 lakhs:
1. Arunachal Pradesh
9. Himachal Pradesh
11. Jammu & Kashmir
No, it is not mandatory for a registered Composition dealer to maintain detailed records as needed by a normal taxpayer.