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GST Composition Scheme: Key Details You Should Know

The GST Composition Scheme offers simplified compliance and lower tax rates for small businesses. Here’s a concise summary of its legal basis, eligibility, rules, and obligations:

  • Simplified Compliance Framework:
    Designed under the CGST Act, 2017, the scheme enables MSMEs to pay tax at a fixed rate based on turnover, with reduced filing requirements and no need to track input tax credits.

  • Legal Structure and Rules:
    Governed by Section 10 of the CGST Act and Rule 7 of the CGST Rules, the scheme outlines applicable turnover limits, tax rates, and compliance responsibilities for eligible taxpayers.

  • Eligibility and Exclusions:
    Open to manufacturers, traders, and select service providers with turnover below thresholds. Not permitted for interstate sellers, non-residents, and those dealing in notified goods like tobacco.

  • Conditions and Compliance Limits:
    Intra-state sales only, no tax collection on invoices, and limited service supply allowed. Violations or excess turnover shift the taxpayer to the regular GST regime automatically.

  • Invoicing and Record-Keeping:
    Businesses must issue a bill of supply, not tax invoices, and display their status as “Composition taxable person” on documents and premises. HSN codes are simplified for GSTR-4 filings.

  • Penalties and Interest:
    Late GSTR-4 filings attract ₹50/day (₹25 CGST + ₹25 SGST), capped at ₹2,000. Nil returns cost ₹10/day. CMP-08 attracts interest for delayed payments, though no late fee applies.

  • RCM and Exemptions:
    No RCM on renting or security services. Other notified services like legal or GTA fall under RCM, with tax payable but no ITC—making such tax a business cost.

Source: www.taxscan.in

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