A composition scheme is one where the taxpayer has shows his intention to the authorities on being registered under this scheme. In case any such taxpayer fails to comply with the regulations of above mentioned registration, the treatment will be done like normal taxpayer and administration will be the same as of normal person. It is applicable for both, goods as well as services.
A person whose previous year aggregate turnover is less than Rs 50 lakh pays tax at 2.5% and more for manufacture and 1% and more for other.
Some persons are not eligible to apply for this scheme which includes persons who:
Further, if any person has various business segments with the same PAN held by him, he needs to register for all the related businesses under the scheme. For example if a person has different business segments like groceries, electronics and textile, he should register all the segments listed above under the same composition scheme or should simply opt out from the scheme.
For a normal taxpayer, it is mandated to submit the monthly returns and one yearly return which totals up to 37 returns a year which is a high compliance based task and non performing of which may attract penalty. But, under this scheme the taxpayer needs to file only a quarterly return along with having less compliance of keeping records which makes him focus on the business more.
As there is not liability of issuing tax invoice and only bill of supply can be issued which makes it a convenient and easy option where lesser details are required.
If an officer finds that a person is not eligible for this scheme and has still opted for it, he shall be made liable of paying differential taxes along with the specified penalty. Further, provisions of recovery and demand will be applied on him. This means that before application for registration under such scheme, a person needs to be sure about the eligibility in order to avoid penal provisions.
For small taxpayer doing such mistake (of registration being ineligible) the liability is only up to payment of tax at standard rate along with the penalty of same amount as that of tax.