COMPOSITION TAXPAYER UNDER GST AND EFFECT OF COVID-19 PANDEMIC ON THEIR BUSINESS

[ASIS PATRO]

GST: AN INTRODUCTION

GST was rolled out with effect from 01^st July 2017, has subsumed various state and central tax under it’s ambit and which has made the compliance under indirect taxes much simpler and convenient for the taxpayer. Now, the people only need to obtain only one registration for indirect taxes and file monthly returns for GST only (i.e., not separately for VAT, Service tax and excise and several other state taxes). GST has also removed the cascading effect of tax on taxes and improving the seamless flow of credit whether it’s on goods or services, or there is an intra-state or inter-state supply.

WHO IS ELIGIBLE FOR COMPOSITION SCHEME?

To ease the compliance and other procedural burden of the small dealers ­, the govt. has given an option to the small businessman having turnover of ₹ 1.5 crores (₹ 75 lakhs in case of special category states) in the previous financial year to opt under the composition scheme (in case of the regular taxpayer the limit for registration for persons supplying goods only is at ₹ 40 lakhs and for others at ₹ 20 lakhs).

COMPOSITION SCHEME- APPLICABLE GST RATES
TYPE OF BUSINESS	CGST	SGST	TOTAL
Manufacturer and traders (Goods)	0.5%	0.5%	1%
Restaurants not serving alcohol	2.5%	2.5%	5%
Other service providers*	3%	3%	6%

*Turnover limit in the previous financial year should not exceed 50 lakhs with a maximum rate as mentioned above. However, a notification is yet to be issued prescribing the tax rate.

As mentioned in the table above, composition scheme option is available to all taxpayers. But, it comes with a certain set of conditions such as below, the person should not be engaged in supply of goods not leviable to tax under the GST law, make any inter-state supply, make any supply through an Electronic commerce operator who is required to collect tax under section 52 of the CGST Act, a casual taxable person nor a non-resident taxable person and also shall not make supply of ice cream and other edible ice, pan masala and tobacco.

A registered person won’t be eligible to opt for this scheme, unless all such registered persons under the same PAN opt to pay tax under the scheme.

HOW IS A TAXPAYER BENEFITED UNDER COMPOSITION SCHEME?

A regular taxpayer under GST(presently) needs to file GSTR 1 & GSTR 3B every month. The outward supplies made by the such taxpayers are chargeable to tax at the rate ranging from 5-28%. For availment of credit, the taxpayer needs to reconcile the purchase register with GSTR 2A (details of inward supplies as uploaded by the suppliers) and take credit restricted the amount of reconciled eligible credit not exceeding 10% of the amount of eligible credit.

Whereas a taxpayer opting for the composition scheme, needs to file only quarterly returns, thereby reducing the compliance burden. They are allowed to make supplies by issuing bill of supply and paying tax at the rate of 1% and 5% (in contrast to the general GST rates of 5%,12%,18% and 28%). As they are not eligible to take credit under this scheme, they need not comply with the 10% ITC restriction which requires lot of time and effort.

THE COVID-19 IMPACT ON THE BUSINESS

But in the present scenario, outbreak of COVID-19 virus in the whole world, it has not only affected the global economies at macro level, but has affected every economy in the world from a micro level also. Every business person be it a tea vendor or an MNC like the Reliance, Tata have been impacted and the economy is having a downfall. With a 21-days lockdown being imposed in the country till 14^th April, which might be ready for further extension presents a lot of obstacles in the way of the businessman.

Even the small businessmen (composition taxpayers) are affected in a tremendous way affecting their supply chain. The manufacturers are unable to procure the raw materials for producing the goods and the traders are thereby, aren’t able to continue on their business as the stocks are either over or about to be over. Moreover, the service providers are also hugely affected because of the pandemic.

One of the biggest option emerging in the crisis situation is “Work from Home”. However, the major manner in which composition dealers might be affected is that there might not be an option to work from home. More specifically for the small businessman who can’t even work from home during these tough period, it challenges them to their core hampering their liquidity situation. They are not anymore open to make some supplies nor even to recover their debtors. Also, there is not the working capital flow. (which would be a big phrase at the current situation) to pay their employees. Slowly with the consumer’s focus restricting towards the essential goods or service and not preferring to move out or rather go online or e-commerce, the businessman is left with no other option rather not having a suitable alternative, prefers for locking down the shutter for an indefinite period.

Government being prudent, in rightly so has taken precautions at an early stage to curb down the spread of the virus in a densely populated country like India. Govt. also has suggested all the businessman to pay their employees be it a sweeper or a labor. Ultimately the burden lies on the businessman irrespective of the classification of a regular GST taxpayer or a composition taxpayer. Although, the government has taken up steps to help the small dealers by introducing various benefits.

RELAXATIONS GIVEN TO THE COMPOSITION TAXPAYERS UNDER GST

Considering the gravity of the situation, the government has provided various concessions in GST by way of extending the due date of GSTR 9A for FY 2018-19 and GSTR 4 for last quarter for FY 2019-20 and also the date for availing the composition scheme for FY 2020-21 till last week of June this year. The government has also taken several measures by lowering the interest rate on extending loans to business.

THE WAY FORWARD

It still continues to be a quest how the country will overcome this pandemic and the life will restart be it for a service provider, a small businessman or a MNC. The govt. has been cautioned against any uncertainty but it will be an uphill task after such a downfall to the country’s GDP. The government could possibly take some steps in a way of exempting the compliances such as returns for small businessmen (especially small and medium) or providing some other incentive which will help the business to get back to their full strength in some way.

The small taxpayers (or any businessman) can look on to cut down their unnecessary expenses and retain their workforce rather than detaining them. Because, this is a situation which will turn around and the business will return to normalcy after some period. So, the key lies in surviving through this difficult stage and may be preparing some innovative ideas which would help them flourish once it restarts.

BE SAFE, BE HOME!!!!!!