GST Composition – Limitations Under GST

Though the GST registration under composition scheme has been appreciated by the startups and SME, however in this article we will discuss.

Limitation of Composition Scheme under GST

  • Interstate Sale

The composition scheme under the new GST regime is available only to those registrants which are carrying on their business intra- state .i.e. within the state.

For e.g.: A person car0rying on the business with the state opted for composition scheme is now willing to sell the goods to another state will not be able to do as he has applied for composition scheme which has specifically excluded interstate sale

  • Without seeking permission

For availing the Composition Scheme under GST a person has to apply for the same. Once applied it will be valid for the entire financial year.  So, make your choices wisely since you can only do so at the start of the year and deal with the same for the entire financial year. Thus a taxable person cannot opt for composition without seeking permission.

  • Specific Exclusion

The GST composition scheme is not applicable to the service sector. A Registered service provider is rendered ineligible for the composition scheme.

  • Composition Limit 

The limit for GST composition scheme is Rupees Seventy five lakhs. If the amount crosses the threshold limit it is taxable at the standard rate as applicable. For instance, For instance, suppose the total supply made during the year comes to around Rs. 72 lakh. You also happen to provide goods, at no cost, to your family to the tune of Rs. 4 lakh. While you may not take into the account the ‘free’ services you provided to your family, your total supply turnover, for the government, stands at Rs. 76 lakh. The above-mentioned amount is liable to be taxed under the standard GST rate. This would also attract penal provisions.

  • Reverse Charge Mechanism 

Under Goods and Services Tax, there is a concept of reverse charge. The ‘reverse charge’ quashes the rules that existed till now wherein the recipient of goods and services paid a certain amount to the government in some cases, and brings in the new rule of the payment coming from the supplier of goods and services. This makes the person registered under composition scheme to be liable to pay taxes at the standard rate, rather than at the discounted composite rate. The standard rate would mean that it adds to the cost of the person paying it since they cannot claim the same as input tax credit. 

  • No Input Tax Credit

If you avail of GST composition benefits, there can be no availing of input credit on the purchases made for the supply of goods.

  • Non Filing of returns in time

The person registered under GST and opted for composition scheme has to file the return on time. In absence of the same, the taxable person will to liable to pay Rs.100 per day as late charges, which is subject to a maximum penalty of Rs. 5,000 per return. In case you feel that your business is not a right fit for GST composition scheme you can apply for opting for Normal GST Registration