Which of the following statements is true regarding the composition scheme?a)Composition taxpayers must pay tax at normal rates on all inward supplies.b)Composition taxpayers can avail input tax credit on their purchases.c)Composition taxpayers are required to maintain detailed records and file complex returns.d)Composition taxpayers are not allowed to deal with unregistered suppliers.Correct answer is option 'A'. Can you explain this answer?

Question

Answer

Option A is true. Composition taxpayers must pay tax at normal rates on all their inward supplies, even though they enjoy a simplified tax and return filing process. They cannot avail input tax credit on their purchases, as mentioned in Section 10(4) of the CGST Act, 2017.

Answer

Composition taxpayers are small taxpayers who have opted for the composition scheme under the Goods and Services Tax (GST) regime in India. The composition scheme is designed to simplify the tax compliance burden for small businesses and reduce their tax liabilities.

Under the composition scheme, the taxpayers are required to pay tax at a fixed rate on their turnover, instead of the normal GST rates applicable to regular taxpayers. The composition rates vary for different types of businesses, such as manufacturers, traders, and restaurants.

Now, let's examine the given statements to determine which one is true regarding the composition scheme:

a) Composition taxpayers must pay tax at normal rates on all inward supplies.
This statement is true. Composition taxpayers are not eligible to claim input tax credit (ITC) on their purchases, and they are required to pay tax at the normal rates on all inward supplies. This means that they cannot pass on the tax burden to their customers and have to bear it themselves.

b) Composition taxpayers can avail input tax credit on their purchases.
This statement is false. Composition taxpayers are not allowed to avail input tax credit on their purchases. They have to pay tax at a fixed rate on their turnover and cannot claim any credit for the tax paid on their purchases.

c) Composition taxpayers are required to maintain detailed records and file complex returns.
This statement is false. Composition taxpayers have a simplified compliance requirement compared to regular taxpayers. They are not required to maintain detailed records of their inward supplies and outward supplies. They are only required to file a quarterly return, known as the GSTR-4, which contains summary details of their turnover.

d) Composition taxpayers are not allowed to deal with unregistered suppliers.
This statement is false. Composition taxpayers can deal with both registered and unregistered suppliers. However, they are not eligible to claim input tax credit on their purchases from unregistered suppliers.

In conclusion, the true statement regarding the composition scheme is that composition taxpayers must pay tax at normal rates on all inward supplies. They cannot avail input tax credit on their purchases and have simplified compliance requirements compared to regular taxpayers.

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