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GST Composition Scheme: Rules, Turnover Limit, Rate, Benefits

The GST Composition Scheme is designed to simplify tax compliance for small businesses. Let’s delve into the rules, turnover limits, tax rates, and benefits of this scheme to understand how it can benefit your business.

What is GST Composition Scheme?

GST Composition Scheme is a special scheme for small businesses to pay tax at a fixed rate based on turnover. It’s aimed at reducing compliance burdens for eligible businesses.

Eligibility for Composition Scheme

Businesses meeting certain criteria are eligible:

  • Annual turnover should be below a specified limit (varies by state).
  • Only intra-state supplies are allowed (no interstate sales).
  • Not engaged in specific businesses like manufacturing ice cream, pan masala, etc.

Turnover Limit for Composition Scheme

The turnover limit for the Composition Scheme typically ranges from ₹20 lakhs to ₹1.5 crores, depending on the state.

Tax Rates Under Composition Scheme

Businesses under this scheme pay tax at a fixed rate based on their turnover:

  • Manufacturers, traders: 1% of turnover.
  • Restaurants: 5% of turnover.
  • Service providers cannot opt for this scheme.

Benefits of GST Composition Scheme

  1. Simplified Compliance: Quarterly filing of returns and reduced paperwork ease compliance burdens.
  2. Lower Tax Rates: Fixed tax rates based on turnover reduce tax liabilities.
  3. Competitive Pricing: Lower taxes allow businesses to offer competitive prices.
  4. Improved Cash Flow: Quarterly tax payments improve cash flow management.

Benefits of GST Composition Scheme

Drawbacks of Composition Scheme

  1. No Input Tax Credit: Businesses under this scheme cannot claim input tax credit on purchases.
  2. Interstate Sales Limitation: Businesses cannot make interstate sales.
  3. Limited Market Reach: Certain businesses like service providers are not eligible.
    Drawbacks of Composition Scheme

Opting for Composition Scheme

Businesses meeting eligibility criteria can opt for this scheme during GST registration or switch during the financial year by filing Form GST CMP-02.

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