How Does the Composition Scheme in GST Benefit Small Scale Traders?


GST has sent many medium and large scale traders in a spin with changed tax rates benefiting some businesses and increasing the burden of tax on others. A lot of small scales businesses haven’t registered for GST as the government has made it optional for them since the introduction of GST.

They feel lucky to be exempted from GST because of the general turmoil created in public and the taxes they are saving. But the threshold limit of registering under GST is quite low at Rs. 20 lakhs, which means only a small number of businesses come on this category.

But the introduction of GST has brought a beneficiary scheme for small-scale traders having a turnover of less than Rs. 1.5 crores. These small scale traders are reaping benefits of the composition scheme in GST. This scheme aims to relieve the small scale traders of the burdens of complying with regular GST procedures.

One of the key benefits of composition scheme in GST is that these small scale traders have to pay subsidized tax rates under GST. Registering under this scheme relinquishes the business of the ability to avail the benefit of applying for input tax credit and issuing a tax invoice.

Benefits for Small Scale Traders Under Composition Scheme

If you are a small scale trader having a turnover of less than Rs. 1.5 Crores and looking to register under GST, here is why you should choose to register under composition scheme in GST:

Less Frequent Filing of Returns

Taxpayers registered for composition scheme in GST have to file quarterly returns instead of the monthly return filing, which is mandatory for regular GST taxpayers. This helps small scale traders concentrate on their business strategies and create efficient workflows rather than spending valuable time filing tax reports. While filing the online GST returns form, it’s useful to use the GST’s emSigner to attest the forms digitally.

Subsidized Tax Rates

Small scale traders registered under composition scheme in GST have to pay lower tax rates than regular taxpayers. The tax rates for such taxpayers are calculated on the basis of the percentage of turnover. This provides major relief for small scale businesses working hard to grow.

As per the recent amendment to the composition scheme in GST, a taxpayer has to pay just 1% tax of the total turnover irrespective of what goods they manufacture or supply. This 1% is equally divided between CGST and SGST, both accounting for 0.5% each.

Restaurants not serving alcohol have to pay 5%(2.5%CGST+2.5%SGST) of their turnover under the composition scheme in GST. Other service providers have to pay a total of 6% of their turnover as tax under GST.

These are flat rates specific to taxpayers registered under composition scheme which can be paid quarterly. As of August 2019, a total of 15.5 lakh taxpayers had enrolled for the composition scheme, and the number is bound to increase because of the emerging startups and service providers in India.

These service providers are also benefiting from GST’s emSigner, which is helping them digitally sign and time stamp GST return forms as well as other documents. The emSigner for GST also facilitates watermarking through which traders can be assured that the official documents of the companies can’t be used by frauds to fake identity. The emSigner for GST is helping taxpayers in India by building a secure and user-friendly plugin to carry out work efficiently.

It’s important to note that taxpayers registered under the composition scheme in GST can’t collect tax separately from customers by issuing an invoice. The scheme is made for the benefit of small scale traders but also indirectly benefits the consumers as they enjoy lower prices as a result of decreased tax rates.

Increased Liquidity

Normal taxpayers registered under the GST pay monthly taxes and can only claim input tax credits when his supplier files for return. Since this is a time-taking process, a lot of cash remains stuck in the system. Small scale traders need cash-in-hand to make instant payments.

As they only pay subsidized tax rates over a quarterly period, they have more cash-on-hand than the normal taxpayers. Having this cash-in-hand really helps out small businesses that need to meet varying overheads and other expenses during their nascent stages.

Platform to Grow

Since taxpayers under composition scheme have to pay lower taxes than regular taxpayers, they can sell products at competitive prices. While large scale traders benefit from the economies of scale.

The lower tax rates for taxpayers under the composition scheme can take hold of local markets by slashing their rates and dish out competitive prices. The composition scheme is helping level the play field and make the market more inclusive.

The market has also been boosted by the introduction of the emSigner for GST which is helping make documentation easier and smoother. The eVault feature in the emSigner helps secure the documents through encryption. The GST emSigner can also be used to sign official documents other than GST Return forms like licenses, certifications etc.

It’s important to note that the composition scheme only benefits those traders who carry out intrastate supplies. The interstate exporters of goods and services need to register as normal taxpayers under the GST. The composition scheme is specifically designed to encourage local suppliers and reduce the gap between large scale and small scale traders.

While the composition scheme benefits those traders who manufacture and supply goods locally, the government also allowed for supplying of services with a limit of 10% of turnover or up to Rs. 5 lakh, whichever is higher.

As the digital market is on the rise with more and more startups looking at digital platforms to supply tech-related services, the inclusion of services means they can also register under composition scheme and reap the benefits until they grow over Rs. 1.5 crores.


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