GST composition scheme takes a quantum leap

Assessees registered under scheme rise to 1.5 million in about two months

Availing of the benefits of a flat tax rate and easier compliance, the number of businesses opting for the composition scheme under the goods and services tax has gone up by 50 per cent.

About 540,000 taxpayers have opted for the scheme under the new window of about 14 days till September 30, compared to one million as of August 16, the earlier deadline.

The scheme is for specific categories of small businesses with a turnover of Rs 75 lakh and below.  Anyone availing of the scheme cannot claim input tax credit. Such a dealer cannot issue a tax invoice. Hence, someone buying from a composition dealer cannot claim input tax on the goods bought.

The number of taxpayers under the composition scheme, at 1.5 million, is about a sixth of the 8.9 million assessees under the GST. Uttar Pradesh (UP), Rajasthan, Maharashtra and Gujarat account for half of the composition dealers. UP has the highest number of such dealers at 291,552, followed by Rajasthan, Maharashtra and Gujarat at 151,432, 145,055 and 109,516, respectively.

While the response under the limited window points to the rising popularity of the scheme, experts suggest that a further extension of the window by two-three months and widening its scope will bump up GST registrations.

“The reopening of the composition scheme has seen a great response. With rising awareness and the fixing of registration-related challenges, more people have been able to make use of the opportunity. Some entities wanted more time to evaluate their business models in order to comply with the requirements of the composition scheme,” said a government official.

The scheme is applicable to certain categories of small taxpayers — traders, restaurants, and manufacturers/suppliers. One per cent GST is levied on traders, 2 per cent on manufacturers, and 5 per cent on restaurants. The initial deadline for availing of the scheme was extended from July 21 to August 16 after only 100,000 had opted for it.  The GST Council decided to reopen the window in the meeting held in Hyderabad on September 9, after registration-related challenges came to light.

The Centre is also considering raising the threshold of the composition scheme to Rs 1 crore (first, it was Rs 50 lakh). Central Board of Excise and Customs Chairperson Vanaja Sarna is reported to have said on Sunday that the recommendation of raising the threshold would be taken to the law committee, which has officials of both the Centre and states. 

“The small and medium sector is facing difficulties… You need to have both the Centre and states on board. Taking all that into account, it would definitely be taken up,” she is reported to have said.

Pratik Jain of PwC India said: “In absolute terms, the number looks good. But whether there is still potential for more people to come in is debatable because there is no benchmark for comparison. A few people earlier were still evaluating whether they should opt for the normal scheme or go for less paperwork.” 

MS Mani of Deloitte said the government should extend the scheme to December 31. 

“It will expand the database of GST taxpayers. More entities will come under the tax net. These composition dealers could become normal taxpayers,” he said. Businesses that have opted for the composition scheme in the September window will be treated as normal taxpayers prior to October 1 and will be required to file monthly returns for the period till September 30. Nevertheless, revenues from the GST are expected to see a jump in September, with Rs 3,000-4,000 crore expected from composition dealers in their quarterly filings.

A composition dealer needs to furnish one return, i.e. GSTR-4, on a quarterly basis and an annual return, Form GSTR-9A, as against three forms every month by a normal taxpayer. Besides, there is no requirement of invoice-wise details or HSN codes in their returns.

The scheme is not available for manufacturers of tobacco and tobacco substitutes, pan masala, and ice cream. Bipin Sapra of EY said a lot of people were waiting for the new window to open. “More people would have opted for it had it been simpler. Composition dealers buying from unregistered dealers need to pay reverse charge. Secondly, the scheme is not applicable for dealers making inter-state sales,” Sapra said.

A few deterrents have kept taxpayers from opting for it. The scheme is not available for those dealing in inter-state supplies of goods. Service providers barring restaurants have been kept out.

The composition scheme in the value-added tax regime varied from state to state.