Composition Scheme acts as an alternative method for levying a tax under GST. Small businesses registered under the GST composition scheme can pay GST at a fixed rate of turnover every quarter and file quarterly GST returns. Composition levy would be generally related to small taxpayers who are supplying goods and services or both to the end consumer with low turnover. Further, the composition scheme has been designed with the aim of making compliance more accessible and cost-effective for the taxpayers.
Eligibility For GST Composition Scheme
Getting registered under composition scheme is optional and voluntary. Any business which has a turnover of less than Rs. One crore or 75 lakhs for the specified states can opt for this scheme but on any given day, if turnover crosses the above-mentioned limit, then he becomes ineligible and has to take registration under the regular scheme. There are certain conditions that need to be fulfilled before opting for composition levy.
They are as follows:
- Any assessee who only deals in supply of goods can opt for this scheme that means this provision is not applicable for service providers. However, restaurant service providers are excluded.
- There should not be any interstate supply of goods that means businesses having only intra-state supply of goods are eligible.
- Any dealer who is supplying goods through electronic commerce operator will be barred from being registered under composition scheme. For example: If M/s ABC sells its products through Flipkart or Amazon (Electronic Commerce Operator), then M/s. ABC cannot opt for composition scheme.
- Composition scheme is levied for all business verticals with the same PAN. A taxable person will not have the option to select composition scheme for one, opt to pay taxes for other. For example, A taxable person has the following Business verticals separately registered Sale of footwear, the sale of mobiles, Franchisee of McDonald’s. Here the composition scheme will be available to all 3 business verticals.
- Dealers are not allowed to collect composition tax from the recipient of supplies, and neither are they allowed to take Input Tax Credit.
- If the person is not eligible under composition scheme, tax liability shall be TAX + Interest and penalty which shall be equal to the amount of tax.
Persons who cannot opt for the composition scheme
- Supplier of service other than restaurant owners(Serving foods and non-alcoholic drinks)
- Supplier of non-taxable goods
- If the person in engage in the inter-state supply of goods
- Supplier supplying goods through E-commerce operator, who is eligible to collect TCS
- Supplier of tobacco, pan masala, and ice cream
Bill of supply
As the composition scheme dealer cannot pass on the credit of the tax, he is required to issue the bill of supply. Details to be mentioned in the bill of supply are as follows –
- Name, address, and GSTIN of the supplier
- A consecutive serial number which is a unique number for every financial year
- Date of issue
- If the recipient is registered then the name, address, and GSTIN of the recipient
- HSN Code of goods or Accounting Code for services
- Description of goods/services
- Value of the goods/services after adjusting any discount or abatement
- Signature or digital signature of the supplier or his authorized representative
What are the conditions for availing Composition Scheme?
- No Input Tax Credit can be claimed by a dealer opting for composition scheme
- The dealer cannot supply goods not taxable under GST such as alcohol.
- The taxpayer has to pay tax at normal rates for transactions under the Reverse Charge Mechanism
- If a taxable person has different segments of businesses (such as textile, electronic accessories, groceries, etc.) under the same PAN, they must register all such businesses under the scheme collectively or opt out of the scheme.
- The taxpayer has to mention the words ‘composition taxable person’ on every notice or signboard displayed prominently at their place of business.
- The taxpayer has to mention the words ‘composition taxable person’ on every bill of supply issued by him.
- As per the CGST (Amendment) Act, 2018, a manufacturer or trader can now also supply services to an extent of ten percent of turnover, or Rs.5 lakhs, whichever is higher. This amendment will be applicable from the 1st of Feb, 2019.
How can a taxpayer opt for composition scheme?
To opt for composition scheme a taxpayer has to file GST CMP-02 with the government. This can be done online by logging into the GST Portal. This intimation should be given at the beginning of every Financial Year by a dealer wanting to opt for Composition Scheme.
How Should a Composition Dealer raise bill?
A composition dealer cannot issue a tax invoice. This is because a composition dealer cannot charge tax from their customers. They need to pay tax out of their own pocket. Hence, the dealer has to issue a Bill of Supply. The dealer should also mention “composition taxable person, not eligible to collect tax on supplies” at the top of the Bill of Supply.
How should GST payment be made by a composition deale
GST Payment has to be made out of pocket for the supplies made. The GST payment to be made by a composition dealer comprises of the following:
- GST on supplies made.
- Tax on reverse charge
- Tax on purchase from an unregistered dealer*
Advantages of Composition Scheme
- Lesser compliance (returns, maintaining books of record, issuance of invoices)
- Limited tax liability
- High liquidity as taxes are at a lower rate
Disadvantages of Composition Scheme
- A limited territory of business. The dealer is barred from carrying out inter-state transactions
- No Input Tax Credit available to composition dealers
- The taxpayer will not be eligible to supply non-taxable goods under GST such as alcohol and goods through an e-commerce portal.
FAQs
What is the GST Composition Scheme?
The GST Composition Scheme is a simplified tax scheme under the Goods and Services Tax (GST) regime designed for small taxpayers. It allows eligible businesses to pay a fixed percentage of their turnover as tax, rather than the standard GST rates, making compliance easier and more affordable.
Who is eligible for the GST Composition Scheme?
Small taxpayers with an aggregate turnover of up to ₹1.5 crore (₹75 lakh for special category states) in the preceding financial year are eligible for the Composition Scheme. Certain businesses, such as those engaged in supply of services (except for restaurants), and those making inter-state supplies, cannot opt for this scheme.