R is carrying on the business of trading of readymade garments as a sole proprietor in Delhi. He wants to diversify his business by opening the branches in other cities across the country. Due to shortage of funds and ot

CS Executive · Setting Up of Business, Industrial and Labour Laws · PYQS · December 2023
R is carrying on the business of trading of readymade garments as a sole proprietor in Delhi. He wants to diversify his business by opening the branches in other cities across the country. Due to shortage of funds and other resources, he approaches his friend K, who is a Practicing Company Secretary (PCS) for seeking his advice on the form of business organisation which may be more beneficial for him. K advises him to convert his sole proprietorship form of business into a private company by involving his friends and relatives as the directors and members of the private company. He describes the characteristics of a private company under the Companies Act, 2013. K further advises R that the conversion of his existing form of business into a private company would provide him easy access to capital needed for diversifying his business.In accordance with the advice of K, R decided to convert his sole proprietorship business into a private company with the proposed name, R Holding Pvt. Ltd. He makes an application to the Registrar of Companies (RoC), Delhi for reservation of the proposed name of the company, R Holding Pvt. Ltd. However, the proposed name is rejected by RoC, Delhi citing the common reasons for rejection of the proposed name. R makes a fresh application for reservation of the proposed new name of the company, R Cloth Trading Pvt. Ltd. and the name is reserved by RoC, Delhi. After filing the necessary e-forms and documents with RoC, Delhi, the company, R Cloth Trading Pvt. Ltd. is incorporated under the Companies Act, 2013.K informs R about the utility of the Permanent Account Number (PAN) and accordingly, R obtains PAN in the name of the company. K also helps him in getting the GST registration in the name of the company and advises him to go for "Composition Scheme" under the GST Act, 2017. R approaches the banks for sanctioning loan for his business to enable him to open branches in the State of Uttar Pradesh. However, due to stringent loan sanctioning process of the banks, R fails to get loan from the banks for his business. R approaches K for seeking his help to arrange the required funds for the business and K helps R in getting loan for his business from, ST Finvest Ltd., a Non-Banking Financial Company (NBFC). The loan is processed quickly by ST Finvest Ltd. to R Cloth Trading Pvt. Ltd. at a very competitive rate of interest.In view of the above, answer the following:Why does K advise R to go for "Composition Scheme" under the GST Act, 2017?

Answer & Explanation:

Composition Scheme under the GST Act, 2017 The composition levy is an alternative method of levy of tax designed for small taxpayers whose turnover is up to ₹1.5 Crores (₹75 lakhs in case of a few States). The objective of the composition scheme is to bring simplicity and to reduce the compliance cost for small taxpayers. Moreover, it is optional, and an eligible person opting to pay tax under this scheme can pay tax at a prescribed percentage of his turnover every quarter, instead of paying tax at the normal rate. The Composition Scheme is now made available to service providers as well, whose aggregate annual turnover does not exceed ₹50 lakhs. Both exclusive service providers and mixed service providers of goods and services can opt for this scheme. K advises R to opt for the composition scheme as R is a small businessman starting his company afresh, and normal GST registration can burden him with major compliances, which will not be the case with the GST Composition Scheme.

Topics: Taxation Law

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