More articles for you

Your one stop place for everything related to finance and lending

Tax

Understanding Section 194IB of the Income Tax Act: TDS on Rent Payments

Understanding Section 194IB of the Income Tax Act: TDS on Rent Payments The Income Tax Act enforces Tax Deducted at Source (TDS) on various income streams. Section 194IB specifically deals with TDS applicable to rent payments made to resident landlords in India. Let's delve into the key aspects of this section. What is TDS under Section 194IB? Under the Income Tax Act, Section 194IB requires a specific group of taxpayers to withhold a portion of rent payments and deposit it with the government. This applies to individual renters and Hindu Undivided Families (HUFs) that are exempt from tax audits under Section 44AB. The key point is that these renters must act as a tax collection agent for the landlord if the monthly rent amount surpasses Rs. 50,000. In simpler terms, they need to deduct a specific tax amount from the rent before paying it to the landlord. What Types of Rent Payments are Covered? The definition of "rent" under Section 194IB is broad and encompasses payments made under various arrangements, including: Tenancy agreements Leases Sub-leases Any other agreement for using assets such as: Equipment Plant Machinery Furniture Land (including land with a building) Building (including a factory building) When to Deduct TDS? The responsibility to deduct TDS falls on the individual or HUF making the rent payment. The deduction must be made at the earliest of these two instances: Time of Rent Credit: This applies to the last month of the previous financial year or the last month of tenancy if the property is vacated earlier. Time of Rent Payment: This could be through cash, cheque, demand draft, or any other mode of payment. TDS Deposit and Return Filing Government Payments: TDS deducted for rent payments made to the government should be deposited on the same day without using any challan form. Other Payments: When using an income-tax challan for deposit, the TDS needs to be deposited within seven days from the month's end in which the deduction was made. However, if the payment falls in March, the deadline extends to April 30th. For late deposits beyond this window, the TDS needs to be deposited within seven days from the end of the month the deduction was made. Rate of TDS under Section 194IB PAN Provided: If the landlord furnishes their PAN, the TDS rate is 5% of the rent amount exceeding Rs. 50,000 per month. PAN Not Provided: In the absence of a PAN, a higher TDS rate of 20% applies to the entire rent amount. Consequences of Non-Compliance Interest: A penalty of 1% per month (or part thereof) is levied on the unpaid TDS amount from the due date of deduction till the actual deduction date. Late Deposit: An additional 1.5% monthly interest (or part thereof) is charged on the deducted but undeposited TDS amount, calculated from the deposit deadline to the actual deposit date. TDS Return Delay: A penalty of Rs. 200 per day is imposed for delayed filing of the TDS return (Form 26QC), subject to a maximum penalty not exceeding the total TDS amount. Differences in Section 194IB and Section 194I Feature Section 194I Section 194IB Applicability Applies to tax-audited individuals/HUFs Applies to non-audited individuals/HUFs Deduction Timing Earlier of rent credit or payment Earlier of rent credit or payment Last Deduction Month Last month of financial year Last month of financial year or tenancy TDS Rate (Land/Building) 10% 5% Minimum Rent Threshold Rs. 2,40,000 /financial year Rs. 50,000 /month TAN Requirement Mandatory Not Required TDS Certificate Form Form 16A Form 16C TDS Return Form Form 26Q Form

24-09-2024

Tax

Understanding Section 194 of the Income Tax Act: Dividend Taxation and TDS

Understanding Section 194 of the Income Tax Act: Dividend Taxation and TDS The Indian Income Tax Act employs a multifaceted approach to ensure efficient tax collection. A key element of this system is Tax Deducted at Source (TDS), which involves withholding a portion of income tax at the source of income generation. Section 194 of the Act specifically focuses on TDS applicable to dividend income distributed by Indian companies. This article delves into the intricacies of Section 194, providing clarity for both companies and individual investors. Evolution of Dividend Taxation: From DDT to TDS Prior to the Finance Act of 2020, dividends declared by domestic companies enjoyed an exemption from income tax under Section 10(34). However, this system presented administrative challenges and complexities for the government. To address these concerns and enhance tax collection efficiency, the concept of Dividend Distribution Tax (DDT) was abolished. This shift necessitated a new approach to taxing dividends in the hands of recipients. Consequently, Section 194 was introduced, mandating TDS on dividend income. Responsibility and Timing of TDS Deduction The onus of deducting tax at source under Section 194 falls upon the principal officer of the company distributing the dividend. This applies to two categories of companies: Indian Companies with Domestic Dividend Operations: This includes companies incorporated in India that declare and pay dividends within the country. Companies with Deemed Dividend Arrangements: This encompasses companies, not necessarily Indian, that have established mechanisms for declaring and paying deemed dividends within India. When is TDS Deducted? To ensure timely tax collection, the company must deduct tax on dividends before any form of payment is made to the shareholder. This includes: Cash payments Issuing dividend checks or warrants Any other distribution considered a dividend as defined under Section 2(22) of the Income Tax Act Exemptions from TDS on Dividend Income Not all dividend payments are subject to TDS under Section 194, like: Small Dividend Payments: If the dividend is paid by account payee cheque and the total amount for the financial year (including previous dividend payments) does not exceed Rs. 2,500 for an individual shareholder, TDS is not deducted. Dividends Subject to Section 115-O: When a company is liable to pay dividend distribution tax under Section 115-O, TDS under Section 194 is not applicable. Dividends to Specified Institutions: Dividends paid to specific institutions like LIC, GIC, its subsidiaries, or other approved insurers are exempt from TDS, provided the shares are held with full beneficial ownership. Tax-Exempt Income: Individuals whose income falls below the taxable limit can avoid TDS at source by submitting Form 15G or 15H. Form 15H is specifically for senior citizens above 60 years old, while Form 15G can be used by any individual or non-company entity whose income is below the taxable threshold. Correcting TDS Deductions Throughout the financial year, there might be instances of excess or insufficient TDS deducted on dividends. To rectify these discrepancies, the company making the payment can adjust the amount of TDS withheld in subsequent payments under Section 194A. This ensures that the total TDS for the year reflects the correct tax liability of the shareholder. Time Limits for Depositing TDS The timeframe depends on the month the dividend is paid: April to February: TDS must be deposited by the 7th of the following month. March: TDS needs to be deposited by April 30th of the same year. By adhering to the provisions of Section 194, companies ensure timely tax collection on dividend income and streamline the tax filing process for shareholders. Understanding these regulations is crucial for both companies and individual investors to ensure proper tax compliance.

24-09-2024

Tax

Section 44ADA: A Simplified Tax Scheme for Professionals in India

Section 44ADA: A Simplified Tax Scheme for Professionals in India For many freelancers and independent professionals in India, navigating the intricacies of income tax can be daunting. The misconception that freelances income escapes taxation is a common one. Fortunately, Section 44ADA of the Income Tax Act offers a welcome solution – a simplified tax structure designed specifically for them. Let's delve deeper into this scheme, exploring its eligibility criteria, benefits, and considerations to help you decide if it's the right fit for your tax situation. Understanding Section 44ADA Introduced in 2016, Section 44ADA serves as a game-changer for qualifying professionals. It establishes a presumptive tax system, eliminating the need for meticulous accounting records. Here's the core concept: instead of documenting every expense, professionals can compute their taxable income as a pre-determined percentage of their gross receipts. This not only streamlines compliance but also has the potential to reduce tax liabilities. Who Qualifies for Section 44ADA? Professionals must meet the following criteria for the benefits: Profession Domain: Your profession must be listed under Section 44AA(1) of the Income Tax Act. This broad spectrum encompasses a diverse range of fields, including doctors, lawyers, engineers, architects, interior decorators, and company secretaries. The Central Board of Direct Taxes may further expand this list, so staying updated on any additions is crucial. Income Threshold: Your total professional income for the financial year must be less than the prescribed limit. As of Budget 2023, this limit has been increased to Rs. 75 lakhs (previously Rs. 50 lakh). Resident Status: You must be residents of India, including individuals, Hindu Undivided Families (HUFs), and partnership firms (other than Limited Liability Partnerships). Key Benefits of Section 44ADA Simplified Tax Filing: Compared to the complexities of regular income tax forms, filing taxes under Section 44ADA is refreshingly straightforward. The process is less time-consuming, minimizes the risk of errors, and offers a smoother overall experience. Reduced Tax Liability: The scheme calculates taxable income as 50% of gross receipts. This translates to potential tax savings, particularly for professionals with minimal expenses. Cost-Effectiveness: The simplified filing process eliminates the requirement for professional tax consultants, leading to significant cost savings for taxpayers. Consider the Following Before Opting for Section 44ADA Actual Expenses: The scheme presumes that professionals have relatively low expenses. If your actual expenses consistently exceed 50% of your gross receipts, you might end up paying more tax under Section 44ADA compared to the regular tax regime. Carefully assess your spending patterns to make an informed choice. Partner Remuneration: A key limitation of Section 44ADA is the inability to deduct remuneration paid to partners from the presumed income. This can be a disadvantage for firms with profit-sharing structures. Flexibility: Unlike some taxpayers, professionals have the flexibility to opt out of Section 44ADA in any given year, even if they had chosen it previously. This flexibility allows you to adapt to changing circumstances and choose the most tax-efficient option each year. Maximizing the Benefits of Section 44ADA Maintain Basic Records: While detailed accounting records aren't mandatory, it's advisable to maintain basic records of income and expenses for future reference and potential tax audits. Track Expenses: Even if you opt for Section 44ADA, keeping track of your actual expenses can be helpful. This allows you to compare your situation with the 50% expense assumption and make informed decisions in future years. Seek Professional Guidance: Consulting a tax advisor can be beneficial, especially if you have any uncertainties or your financial situation is complex. A professional can help you evaluate your eligibility, calculate potential tax liabilities under different scenarios, and guide you towards the most tax-efficient option.

24-09-2024

Tax

Understanding GST Return Late Fees and Interest

Understanding GST Return Late Fees and Interest Filing GST returns on time is crucial for businesses registered under the Goods and Services Tax (GST) regime in India. Delays in filing these returns attract late fees and interest charges, which can add a significant financial burden. What are Late Fees? Late fees are levied by the government for non-compliance with GST return filing deadlines. These fees are calculated on a per-day basis, starting from the day after the due date and continuing until the return is filed. Importantly, the late fee cannot be paid using Input Tax Credit (ITC) available in the electronic credit ledger. The GST Return Forms and Late Fee Structure GSTR-3B: This is the most common return filed by most GST-registered businesses. It summarizes the outward and inward supplies made during a month. The late fee for GSTR-3B is: Rs. 20 per day (Rs. 10 for CGST and Rs. 10 for SGST) for filing a nil return (meaning no transactions but with acquisitions). Rs. 50 per day (Rs. 25 for CGST and Rs. 25 for SGST) for any other scenario. GSTR-1: This return captures details of all outward supplies made during a month. While the late fee for GSTR-1 is Rs. 200 per day (Rs. 100 for CGST and Rs. 100 for SGST), currently, the government does not accept late fees for this form. GSTR-9 and GSTR-9A: These annual returns provide a comprehensive view of a business's GST transactions throughout the year. The late fee for these returns is a maximum of Rs. 200 per day (Rs. 100 for CGST and Rs. 100 for SGST), subject to a cap of 0.50% (0.25% for CGST and 0.25% for SGST) of the taxpayer's turnover. GSTR-10: This return is filed by companies registered under the Composition Scheme. The late fee for GSTR-10 is Rs. 200 per day (Rs. 100 for CGST and Rs. 100 for SGST) with no upper limit on the penalty amount. Important Points to Remember There is a maximum limit on the late fee that can be charged for each return type. For GSTR-3B, the maximum is Rs. 10,000 (Rs. 5,000 for CGST and Rs. 5,000 for SGST). Businesses cannot file the GSTR-3B for the current month unless the late fee for the previous month's return is paid. Late fee payments for GSTR-3B for a particular month are levied in the subsequent month. Interest on Late Payment of GST Apart from late fees, businesses are also liable to pay interest on any outstanding tax dues after the due date. This interest is calculated at a rate of 18% per annum from the day after the due date until the payment is made. GST Payment Rules Payments for tax, interest, penalty, and fees made through online banking, credit card, NEFT, or RTGS are credited to the electronic cash ledger. Any outstanding interest, fee, or liability in the taxpayer's account will be automatically deducted from this balance. Payment for the GST PMT-06 form is made via challan, which is valid for only 15 days. A Challan Identification Number (CIN) is generated upon successful payment. If the CIN is not generated, taxpayers can file Form GST PMT-07. Online fee transfers are credited to the taxpayer's account the next day if initiated after 8 pm. While physical challans are no longer accepted for GST payments, challans can still be generated from the gst.gov.in portal for all tax, interest, penalty, and fee payments. Challan payments below Rs. 10,000 can be made over the counter at designated banks using cash, cheques, or demand drafts. Payments exceeding Rs. 10,000 must be made digitally.

24-09-2024

Tax

Understanding TDS Returns: A Guide for Taxpayers in India

Understanding TDS Returns: A Guide for Taxpayers in India In India's tax system, Tax Deducted at Source (TDS) plays a crucial role. It involves withholding a specific portion of tax from certain payments at the source of income. This deducted tax is then deposited with the government by the deductor (the one making the payment). To ensure transparency and proper accounting, deductors are required to file TDS returns periodically. What is a TDS Return? A quarterly statement which summarizes every TDS-related transaction made by a deductor during a specific quarter is called TDS returns. It essentially details the TDS collected and deposited to the Income Tax Department. Failing to file returns attracts penalties. This statement includes information such as: Permanent Account Number (PAN) of both the deductor and the deductee (the one receiving the payment) Particulars of the TDS deducted Challan details (payment slip) The details included in the online TDS return form are reflected in the deductee's Form 26AS, a consolidated tax statement. Who Needs to File TDS Returns? The responsibility of filing TDS returns falls on employers and organizations that have a valid Tax Deduction and Collection Account Number (TAN). This includes: Businesses and companies Government offices Individuals or groups liable for tax audits under Section 44AB TDS returns need to be filed for various types of income, including: Salary income Income from securities (investments) Insurance commission Payments towards National Savings Scheme (NSS) and similar schemes Winnings from horse races, lotteries, or puzzles Understanding TDS Deduction Rates The rate at which TDS is deducted depends on the type of income and the total amount earned. It typically ranges between 1% and 30%. The basic principle is that tax is paid on income exceeding a certain threshold limit. Types of TDS Return Forms There are different TDS return forms applicable to various types of TDS payments. Here's a brief overview: Form 24Q: Statement of TDS deducted on salaries Form 26Q: Statement of TDS deducted on non-salary income Form 26QB: Statement of tax deducted against payment of immovable property (rent) Form 27Q: Certificate of TDS deducted on interest, dividend payable to Non-Resident Indians (NRIs), and foreign companies Form 27EQ: Statement of Tax Collected at Source (TCS) Due Dates for Filing TDS Returns The deadlines for depositing and filing TDS returns are as follows: Quarter 1: July 31st Quarter 2: October 31st Quarter 3: January 31st Quarter 4: May 31st Filing TDS Returns Online The process of filing TDS returns is now entirely online through the Income Tax Department's e-filing portal. Here's a simplified breakdown: Visit the official e-filing portal (https://www.incometax.gov.in/iec/foportal/). Login using your TAN or user ID, password, and Captcha code. Navigate to the TDS section and select "Upload TDS." Choose the relevant statement details like FVU version, form name, financial year, upload type, and quarter. Validate the statement details by clicking "Validate." Upload the TDS statement using a Digital Signature Certificate (DSC). Upload the ZIP file containing the TDS statement. Attach a signature file. Click "Upload" to submit the return. Important Requirements for Uploading TDS Returns Possess a valid TAN. Be registered on the e-filing portal. Utilize the Return Preparation Utility and File Validation Utility for preparing and validating the TDS statement. Have a registered DSC for e-filing. Provide details of a Demat account or bank account. Alternatively, taxpayers can use Electronic Verification Code (EVC) for uploading returns, but this requires linking their PAN with Aadhaar. Conclusion By understanding the TDS return process, adhering to deadlines, and maintaining accurate records, taxpayers can ensure a smooth and compliant tax filing experience.

24-09-2024

Tax

Understanding Section 194B of the Income Tax Act: TDS on Lottery Winnings and More

Understanding Section 194B of the Income Tax Act: TDS on Lottery Winnings and More Imagine the thrill of winning a lottery, a game show, or a prestigious competition. The life-altering possibilities dance in your head, but amidst the celebration, a crucial tax implication awaits. Section 194B of the Income Tax Act introduces the concept of Tax Deducted at Source (TDS) on such windfalls, ensuring the government collects its share upfront. Understanding this section is vital for anyone fortunate enough to receive a significant prize. What is Section 194B? Section 194B goes beyond traditional lotteries, encompassing a broader range of exciting yet fiscally relevant activities. Here's a breakdown of the categories subject to TDS under this section: Lotteries Crossword puzzles Online gaming Horse racing Quiz shows and game shows Card games (including online versions) Dance competitions How Does it Work? The responsibility for deducting TDS falls on the entity disbursing the prize, referred to as the "payer." They act as a tax collection agent at source, ensuring a portion of the winnings is withheld before handing over the full amount to the lucky recipient, the "payee." This pre-emptive tax collection applies when the prize money exceeds Rs. 10,000, preventing a potential tax burden later. The Rate and Implications The current TDS rate under Section 194B stands at a flat 30%. This means, for every Rs. 100,000 you win, Rs. 30,000 will be deducted as TDS before you receive the remaining Rs. 70,000. It's important to remember that this TDS acts as a pre-payment of your final tax liability on the winnings. You can potentially claim a refund if your total tax liability for the year is lower than the TDS deducted. What Happens if the Winnings are Not in Cash? If the prize is awarded partly or entirely in kind (goods or services), the payer must still deduct TDS. Here's how it's handled: Partial Cash Prize: If part of the prize is cash and the remaining is in kind, the TDS will be deducted solely from the cash portion. Prize Entirely in Kind: In this scenario, the payer needs to ensure the tax is paid on the total prize value before releasing it to the winner. Important Points to Remember: Pre-approved Deductions: Any portion of the prize money already deducted by the government or lottery conducting agency is exempt from further TDS. Unclaimed or Unsold Tickets: If an agent receives prize money due to unclaimed or unsold tickets, it becomes part of their business income and isn't subject to TDS under Section 194B. Prize Money Instalments: If the prize is paid in instalments, TDS will be deducted on each instalment amount. Agent Commissions: Commissions paid to lottery agents or sellers are not subject to TDS at source. The tax is calculated on the net winnings after deducting the commission. Penalties for Non-Compliance The payer is liable for a penalty equivalent to the deducted TDS amount if they fail to withhold tax at source. Additionally, they may face imprisonment (3 months to 7 years) or a fine for non-deposit of deducted tax to the government. Calculating TDS under Section 194B Unlike regular income, lottery winnings and similar gains are categorized as "Income from other sources" for tax purposes. They are not combined with your other income for tax calculation. The TDS deducted at source under Section 194B is considered a tax deposit towards your final tax liability. Conclusion By being aware of the TDS deduction and its implications, you can avoid any unexpected tax burdens and penalties in the future. Remember, if in doubts or require further clarification, consulting a tax professional.

24-09-2024

Tax

Professional Tax in India

Professional Tax in India What is Professional Tax (PT)? Professional tax is a levy imposed by state governments in India on income earned from professions, trades, or employment. It's a small tax deducted from your salary by your employer and shown on your payslip or Form 16. Self-employed individuals are also accountable for paying PT directly to the government. Who Pays PT? · Salaried individuals: Most states in India mandate PT for salaried employees, with the employer deducting the amount. · Self-employed professionals: Doctors, lawyers, chartered accountants, freelancers, and other self-employed individuals need to pay PT on their own. Professional Tax Applicability by State: PT applicability varies across states. Some states, like Rajasthan and Haryana, don't levy PT. A complete list of states with and without PT can be found online. Professional Tax Rates and Slabs: Each state has its own PT structure, defining income slabs and corresponding tax amounts. Here are some examples: · Maharashtra: o Up to Rs.7500/month (men) or Rs.10000/month (women): Nil o Rs.7501-10000/month (men): Rs.175 o Above Rs.10000/month: Rs.200 (Rs.300 in February) · West Bengal: o Up to Rs.8500/month: Nil o Rs.8501-10000/month: Rs.90 o PT increases progressively with higher income slabs. · Tamil Nadu: o Up to Rs.3500/month: Nil o PT increases progressively with higher income slabs. Paying PT: · Salaried individuals: Your employer handles PT deduction and payment. · Self-employed individuals: You can pay PT online through the state government's professional tax portal or offline at tax offices. Key Points to Remember: · PT is capped at Rs.2500 per month, regardless of income or state. · PT is deductible from your taxable income under the Income Tax Act. · Late PT payment attracts penalties. · Businesses need to register for PT certificates to deduct and pay PT for their employees. Benefits of Online Payment: · Convenient and time-saving compared to offline methods. · Allows easy tracking of payments and tax history. · May offer discounts or rebates in some states for advance payments. Professional tax is important for salaried and self-employed individuals in India. Knowing your state's PT structure and payment options helps pay tax compliance and avoid penalties.

24-09-2024

Tax

Understanding GST on Freight Charges in India

Understanding GST on Freight Charges in India The Goods and Services Tax (GST) has transformed the Indian tax landscape, impacting various aspects of business operations, including the transportation of goods. For businesses that rely on freight services, understanding the intricacies of GST on freight charges is crucial. This guide delves into the who, what, when, and why of GST on freight, equipping you with the knowledge to navigate this sometimes-complex terrain. Who Pays GST on Freight Charges? The responsibility for paying GST on freight charges depends on the transportation service recipient. In most of cases, the consignor (sender) or the consignee (receiver) of the goods will be liable for the tax. Here's a breakdown of who pays GST based on the recipient category: Specified Persons: When a Goods Transport Agency (GTA) provides freight services to specific entities like registered factories, companies, government bodies, or GST-registered individuals, the recipient pays GST under the reverse charge mechanism. These entities are mandatorily required to register under GST, even if their turnover falls below the threshold limit. They can claim input tax credit (ITC) on the GST paid. Unregistered Recipients: If the recipient is not a "specified person" (e.g., unregistered businesses or individuals), the GTA becomes responsible for paying GST on the freight charges. This applies when the GTA's turnover exceeds the ₹20 lakh threshold and they are not exclusively providing services to recipients under reverse charge. GST Registration for GTAs The need for a GTA to register under GST depends on their clientele. GTAs dealing solely with recipients liable for reverse charge GST may not require registration as their services are considered reverse charge supplies, attracting no tax liability for the GTA. However, GTAs providing services to unregistered businesses or individuals must register under GST if their turnover surpasses the ₹20 lakh threshold. GST Rates on Freight Charges The standard GST rate on freight charges is 5% without input tax credit or 12% with input tax credit. However, several exemptions apply, eliminating GST on freight for specific goods and situations: Essential Items: Transportation of agricultural produce, milk, salt, food grains (rice, flour, pulses), organic manure, and registered newspapers/magazines is exempt from GST. Disaster Relief: Transporting relief materials for victims of natural disasters or accidents is also exempt. Low-Value Transportation: Goods with a total freight charge of less than ₹1,500 per consignment in a single carriage are exempt from GST. Determining GST Liability To establish who is liable for GST on freight charges, it's crucial to identify the recipient of the service. The party bearing the cost of freight (either the consignor or consignee) will ultimately be responsible for the GST. Services Included in Freight Charges The scope of freight charges often extends beyond just transportation. It may encompass services like loading, unloading, packing, unpacking, transshipment, and temporary warehousing provided by the GTA. GST on Freight Charges in Invoices The rate of GST on freight charges in an invoice depends on the value of supply. If the freight cost is included in the total value of the supplied goods, GST will be levied on the combined amount at the same rate applicable to the goods themselves. Consignment Note and GST A consignment note is a document issued by a GTA upon receiving goods for transportation by road. While not directly related to GST, it serves as a crucial document for record-keeping and tax purposes. In Conclusion Understanding GST on freight charges is essential for both the GTAs and businesses utilizing their services. By considering the recipient category, GST registration requirements, applicable rates, and exemptions, businesses can ensure proper tax compliance and avoid any discrepancies.

24-09-2024

Tax

GST Composition Scheme: Simplifying Tax Compliance for Small Businesses in India

GST Composition Scheme: Simplifying Tax Compliance for Small Businesses in India The Goods and Services Tax (GST) introduced in India has streamlined the taxation system for businesses of all sizes. However, for small businesses, managing GST compliance can still be a burden. To address this challenge, the government introduced the GST Composition Scheme, a simplified tax payment mechanism offering significant benefits. The GST Composition Scheme is an optional tax payment method designed for small taxpayers with an annual turnover up to Rs. 1.5 crore (Rs. 75 lakhs for certain states). Businesses registered under this scheme pay GST at a fixed rate on their total turnover instead of the regular GST rates on individual sales and purchases. Scheme Eligibility Turnover Limit: Businesses with an annual turnover below Rs. 1.5 crore (or Rs. 75 lakhs in specific states) can opt for the composition scheme. Business Activities: The scheme is applicable to manufacturers, traders, and restaurants (excluding those serving liquor). The turnover limit is Rs. 50 lakhs for service providers. PAN-based Turnover: The combined turnover of all businesses registered under the same PAN is considered for eligibility. Who is Not Eligible? Businesses involved in inter-state supplies of goods cannot register under the composition scheme. Suppliers selling goods through e-commerce platforms are not eligible. Manufacturers of pan masala, tobacco products, and ice-cream are excluded. Non-resident taxable persons and casual taxable persons cannot avail the benefits of this scheme. Conditions for Registration Goods under GST: Businesses registering under the scheme cannot deal in supplying goods exempt from GST (e.g., alcohol). Input Tax Credit Restriction: Businesses opting for the composition scheme forego claiming input tax credits on purchases. Reverse Charge Mechanism: Transactions under reverse charge will be taxed at the regular GST rate. Mandatory Display: Businesses under the scheme must mention "composition taxable person" on signages and bills of supply. Multiple Businesses under One PAN: If a taxpayer has businesses under different categories (e.g., electronics, textiles, groceries) registered under the same PAN, all businesses must be registered under the composition scheme or none at all. Services provided by Manufacturers/Traders: As per the CGST (Amendment) Act of 2018, manufacturers and traders offering services up to Rs. 5 lakh or 10% of their turnover (whichever is higher) can still avail the composition scheme (effective from February 1, 2019). Registration Process Eligible businesses can register for the composition scheme by filing Form GST CMP-01 or 02 online through the GST portal. The process involves logging in to the portal, navigating to the "Services" section, selecting "Registration," and then choosing "Application to opt for composition levy." After reviewing the scheme details and filling in the required information, the application can be submitted electronically using a digital signature certificate (DSC), electronic verification code (EVC), or e-signature. Benefits Reduced Tax Rates: The composition scheme offers significantly lower tax rates compared to regular GST. Rates vary based on the business type, with manufacturers and traders enjoying a 1% tax rate, restaurants (excluding those serving liquor) having a 5% rate, and service providers facing a 6% rate. Improved Liquidity: Fixed tax rates under the scheme allow businesses to maintain better cash flow and liquidity. Simplified Compliance: Businesses can significantly reduce their compliance burden by filing only one quarterly return (GSTR-4) and one annual return (GSTR-9A) instead of multiple regular GST returns. Drawbacks Restriction on Tax Collection: Businesses under the scheme cannot collect tax from their customers on invoices. Input Tax Credit Ineligibility: Businesses cannot claim input tax credit on purchases, which can be a disadvantage if they purchase raw materials with high GST rates. Geographical Limitations: The scheme does not apply to inter-state supplies.

24-09-2024