What is composition scheme under GST with example?
Answered on February 07,2023
I would suggest you to watch this video:
In the video, I have discussed the composition scheme in detail!
Answered on February 28,2023
The composition scheme under GST is a simple and easy-to-comply taxation system designed for small businesses with a turnover of up to Rs. 1.5 crore. Under this scheme, businesses can pay tax at a fixed rate on their turnover without having to maintain detailed records or file complicated tax returns.
The composition scheme is optional, and businesses can choose to opt for it voluntarily. However, once a business opts for the scheme, it is required to comply with certain conditions and restrictions, such as not being eligible to claim input tax credit.
The following are the main features of the composition scheme under GST:
- Applicable to small taxpayers with a turnover of up to Rs. 1.5 crore (Rs. 75 lakhs for some specified states in North-East India).
- Tax liability is calculated at a fixed percentage of the turnover.
- Input tax credit cannot be claimed.
- Businesses cannot supply goods or services outside the state.
- E-commerce operators are not eligible for the composition scheme.
Here is an example of how the composition scheme works:
Suppose a business has a turnover of Rs. 80 lakhs and opts for the composition scheme under GST. As per the prescribed rate of tax under the scheme, the business will have to pay tax at the rate of 1% (for traders and manufacturers) or 5% (for restaurants) on its turnover. The tax liability for the business would be:
- For traders and manufacturers: 1% of Rs. 80 lakhs = Rs. 80,000
- For restaurants: 5% of Rs. 80 lakhs = Rs. 4 lakhs
Thus, the business can pay tax at a fixed rate of 1% or 5% on its turnover without having to maintain detailed records or filing complicated tax returns.
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