What Happens When You Cross the Composition Scheme Limit?
The GST Composition Scheme is designed to simplify GST compliance for eligible small taxpayers. However, businesses need to keep a close watch on their total turnover.
The GSTAT Telangana has clarified that once the prescribed turnover limit is crossed, the Composition Scheme automatically ends from that date. The taxpayer may then become liable to pay GST under the regular scheme.
The Scheme Does Not Continue After the Limit Is Crossed
A business cannot simply continue under the Composition Scheme until the end of the financial year after crossing the applicable turnover limit.
The important point is to identify the exact date on which the limit was crossed and review the GST liability from that date onwards.
Important Relief: Cum-Tax Benefit Under Rule 35
The GSTAT also provided important relief regarding the calculation of additional GST liability.
Composition taxpayers generally do not charge GST separately from customers. Therefore, where the amount received from the customer already includes the GST component, the tax may be calculated from that total amount instead of simply adding GST on top of the entire invoice value.
Simple Example
If a customer paid ₹105 and the GST rate is 5%:
- Total amount received: ₹105
- Taxable value: ₹100
- GST: ₹5
This is known as the cum-tax benefit under Rule 35.
Depending on the facts of the case, this may reduce the additional GST liability.
What Should Businesses Do?
Businesses under the Composition Scheme should:
- Monitor their total turnover regularly.
- Identify the exact date on which the prescribed limit is crossed.
- Review GST liability from that date onwards.
- Check whether GST was charged separately to customers.
- Consult a Chartered Accountant if a GST audit or tax demand is received.
- Check whether Rule 35 cum-tax benefit may be available.
Conclusion
Crossing the prescribed Composition Scheme turnover limit can automatically end eligibility under the scheme. However, while calculating the resulting GST liability, taxpayers may be entitled to cum-tax treatment under Rule 35 where the applicable facts support such a claim.