Skip to main content

Why composition levy scheme confounds small businesses

The National Capital Region (NCR), one of the biggest markets in the country, spanning three states — Delhi, Haryana, Uttar Pradesh — typifies the challenges for businesses that register under the composition levy scheme.
Applicable to certain categories of small taxpayers — traders, restaurants, and manufacturers/ suppliers — whose annual turnover does not exceed Rs 75 lakh ( Rs 50 lakh for certain states), the objective of the scheme is to make the new indirect tax regime simple with reduced compliance. The tax rates range from 1 per cent for traders, 2 per cent for manufacturers, and 5 per cent for restaurant services. Under the scheme the taxpayer is required to file one return in each quarter.
However, attached to the scheme are riders that have stumped businesses. Any business that makes interstate supply is outside the ambit of the scheme. For instance, small businesses operating in the NCR face the brunt of this condition because their supplies often cross state borders. Moreover, businesses registered under the scheme cannot claim input tax credit on their inward supplies. Similarly, supplies made by such businesses are not eligible for input tax credit.
The invoice issued under the scheme has to mention it’s for the “composition taxpayer and input tax credit not eligible”. This effectively puts businesses under this scheme outside the input tax credit chain.
“The break in the credit chain is making the scheme unattractive,” says Madhukar N Hiregange, partner, Hiregange & Associates. Many tax experts say small dealers and suppliers will lose business in the long run.
Once opted, the scheme applies for the entire financial year. “It is important for a taxpayer to cautiously evaluate its business requirement before opting for the scheme,” says Rajeev Dimri, leader, indirect tax, BMR & Associates.
The penalty for any breach of compliance or filing mistakes under the composition scheme is turning out to be a deterrent for small businesses. A taxpayer is liable to pay tax at a standard rate on the turnover along with the penalty equal to the tax liability in the case of non-compliance.
There is also confusion in the minds of tax experts whether a small business owner who earns rental income or receives interest income would be eligible for registration under the composition levy scheme. “That is the case in most proprietary firms,” says Arun Gupta, a chartered accountant, who has been advising small businesses on GST compliance.
However, Pallav Pradyumn Narang, partner, Arkay & Arkay, says that income earned from non-business activities, such as interest, will not impact the eligibility of people in availing themselves of benefits under this scheme.
The Business standard, New Delhi, 17th July 2017


Popular posts from this blog

RBI rushes in to prop up falling rupee

RBI rushes in to prop up falling rupee India’s central bank reportedly intervened in the currency markets on Monday to prevent a further slide in the local unit, which breached the 67 mark to a dollar for the first time in 15 months amid a widening trade gap and runaway import bills fuelled by high crude-oil prices. Some state-owned banks were seen selling dollars aggressively, interventions that market dealers attributed to the central bank’s strategy to stem the decline of the Indian rupee against the US currency. The rupee is the worst performing among a dozen Asian monetary units in the past three months. It lost 4.25 per cent to the dollar during the period, show data from Bloomberg. On Monday, the Reserve Bank of India (RBI) is said to have sold about Rs 800 million collectively on the spot and exchange traded futures markets, dealers said. An email sent to RBI remained unanswered until the publication of this report. The currency market has seen such a strong central bank interven…

GST Refund of Rs 20,000 Cr Pending: Exporters’ Body

GST Refund of Rs  20,000 Cr Pending: Exporters’ Body Refund of over Rs 20,000 crore on account of Goods and Services Tax (GST) is pending with the government with more than half the amount stuck as input tax credit, Federation of Indian Export Organisations said on Tuesday. While claims over Rs7,000 crore were cleared in March, the amount was Rs 1,000 crore in April.However, after exporters’ request, the GST council and tax department are organizing a second phase of Special Refund Fortnight starting May 31, which will enable exporters to draw their refunds at a speedy pace. Many exporters have been unable to file the refund of input tax credit due to technical glitches, exports and claim happened in different months. The major challenge lies on ITC refund especially because the process is partly electronic and partly manual which is cumbersome and add to the transaction cost, the exporters’ body said. On IGST, refunds are getting delayed due to airline and shipping companies not submitt…

Shrinking footprints of foreign banks in India

Shrinking footprints of foreign banks in India Foreign banks are increasingly shrinking their presence in India and are also becoming more conservative than private and public sector counterparts. While many of them have sold some of their businesses in India as part of their global strategy, some are trying to keep their core expertise intact. Others are branching out to newer areas to continue business momentum.For example, HSBC and Barclays Bank in India have got out of the retail business, whereas corporate-focused Standard Chartered Bank is now trying to increase its focus on retail “Building a retail franchise is a huge exercise and takes a long time. You cannot afford to lose it,” said Shashank Joshi, Bank of Tokyo-Mitsubishi UFJ’s India head.According to the Reserve Bank of India (RBI) data, foreign banks’ combined loan book shrunk nearly 10 per cent from Rs 3.78 trillion in fiscal 2015-16 to Rs 3.42 trillion last financial year. The banking industry, which includes foreign banks…