To provide relief to small bars and taverns with an annual business turnover of less than Rs 10 lakh, recently brought under the Value Added Tax (VAT), the Indian government has introduced an option for these entities to opt for the ‘composition scheme.’
This scheme allows them to pay just 2 per cent of their annual turnover as VAT, easing the compliance burden on family-run bars and taverns in villages. The move is expected to result in a slight reduction in alcohol prices for consumers.
The commissioner of state taxes has established a new category under the VAT composition scheme specifically tailored for small bars and taverns. The objective is to streamline the compliance process for these establishments, sparing them from intricate procedures.
Bars and taverns serving alcohol were previously subject to a 22 per cent tax on Indian Made Foreign Liquor (IMFL) and a 5 per cent tax on country liquor, with the provision of input tax credit.
However, in December, an amendment was introduced, making it mandatory for all bars and taverns, regardless of size, to register under the VAT regime. Failure to comply and pay VAT could result in penalties, with a maximum penalty of up to Rs 25,000 for unregistered dealers.
Recognising the challenges faced by small taverns in villages, which often do not collect taxes, the government has extended the time limit for bars and taverns to register for VAT until 31 March.
Additionally, the deadline to opt for the composition scheme is March 15, allowing eligible establishments to choose a simplified tax payment approach.
The composition scheme is designed to ease the burden on businesses by eliminating the need for detailed sales records. Participants pay tax based on their total annual turnover, filing returns only once a year through a one-page form.
This marks a significant departure from the previous absence of a composition scheme for bars, which was previously only available for liquor retailers selling packed bottles with no value addition, allowing them to pay 1 per cent of their annual turnover as composition tax if their turnover exceeded Rs 1 crore.
The creation of a second category specifically for small bars and taverns within Goa reflects a tailored approach to address the unique circumstances of these establishments.
