Composition Scheme: – Composition Scheme under GST is a very simple and hassle free compliance scheme for small taxpayers. The main objective of composition scheme is to reduce compliance cost for small taxpayer. Section 10 of CGST act explained the provision of composition levy scheme. It is a voluntary scheme and under this scheme eligible person opting to pay tax at a prescribed percentage of his turnover instead of paying tax at normal rate.
Eligible persons for composition Scheme:- Following persons is eligible for composition scheme.
1. Manufacturers and Traders (Manufacturer of tobacco and tobacco substitutes, manufacturer of Pan-masal, manufacturer of aerated water and manufacturer of ice-cream and other edible oil are not eligible for composition scheme).
2. Restaurant services not serving alcohol.
3. Manufacturers and traders who value of services shall not be more than 10 percent of the turnover or five lakh rupees, whichever is higher.
4. Service provider having aggregate turnover up to INR 50 Lakh.
5. Manufacture of bricks, including building bricks, bricks of fossil meals or similar siliceous earths, earthen or roofing tiles, and fly ash bricks and block. (Effective from 1st April 2022).
Composition Scheme under GST for services:- If a person is not cover under above category then he is still eligible for composition scheme. A Service provider or mixed suppliers is eligible for composition scheme if his aggregate turnover in preceding financial year does not exceeds fifty lakh rupees. (Section 10(2A) of CGST Act).
Conditions for composition Scheme: – Following conditions need to be satisfied for composition scheme:-
1. Registered person is not engaged in supply of services other than supplies referred to in clause (b) of paragraph 6 of Schedule II (Restaurant services not serving alcohol).
2. He is not engaged in making any supply of goods or services which are not chargeable to tax under this act.
3. Registered person is not engaged in making any inter-state outward supplies of goods or services.
4. He is not making supply of goods or services through e-commerce operator who as per section 52 is required to collect tax at source.
5. Person not engaged in manufacturing of goods notified by the Government on recommendations of GST council. For this purpose, Government has notified the manufacturer of ice-cream and other edible oil, tabacco or tobacco substitutes, Pan masala and aerated water.
6. He is neither a causal taxable person nor a non-resident taxable person.
Composition Scheme Turnover limit:- A registered person who “aggregate turnover” does not exceed the limit of INR 1.5 crore in the preceding financial year will be eligible for payment of tax under composition scheme instead of normal tax regime. The limit of INR 1.5 crore is INR 75 Lakh in case of specified states. In case of service provider or mixed supplier the threshold limit is INR 50 Lakh instead of INR 1.5 crore. The aggregate turnover will be checked on PAN India basis i.e. turnovers across all states under same PAN.
The term “aggregate turnover” has been defined under section 2(6) of CGST act. Aggregate turnover is calculated on all India bases for a person having the same PAN (Permanent account number). Aggregate turnover is sum of value of all outward supplies cover in the following four categories:-
- Taxable Supplies
- Exempt Supplies
- Export of Goods or Services or both
- Inter-state supplies
Aggregate Turnover does not include on which taxes has been paid on reverse charge basis. Aggregate turnover also excluded the value of taxes paid (CGST, SGST, UGST, IGST or Cess) on supplies.
A person who opts for to pay tax under composition scheme may provide services. In such case the value of services shall not be more than 10 percent of the turnover in the state or union territory in the preceding financial year or five lakh rupees, whichever is higher. However, the value of exempt supply of services such as interest income or discount shall not be consider as part of turnover in a state or union territory. (CBEC vide order no. 01/2017-Central tax dated 13th October 2017).
Registration under Composition Scheme: – GST registration is mandatory in order for option for composition scheme. An unregistered person can apply for registration in Form GST REG – 01. In respect of registered people who want to opt for composition scheme have to file Form GST CMP – 02. Form GST CMO – 02 has to be file before the commencement of financial year in which option to pay tax under composition levy scheme is exercised.
Registered person also furnish Form GST ITC – 03. Form GST ITC – 03 pertain to reversal of ITC or payment of tax on inputs held as stock, semi finished goods, finished goods and capital goods under section 18(4) of CGST Act. Form GST ITC -03 to be filed within 90 days from the commencement of relevant financial year.
Composition Scheme GST rate:- In Composition scheme the register person have to pay taxes at fixed rate irrespective the actual rate on outward supply. For payment of taxes, the registered person needs only the aggregate value of outward taxable supplies and pay tax at fixed rate. Rate of taxes under composition levy are as under:-
| Nature of Business | CGST | SGST | Total |
| Manufacturers and Traders | 0.50% | 0.50% | 1.00% |
| Restaurant not service alcohal | 2.50% | 2.50% | 5.00% |
| Other Service Providers | 3.00% | 3.00% | 6.00% |
| Manufacturers of bricks (Including building brick, bricks of fossil meals or similar siliceous earths, earthen or roofing ties, and fly ash bricks and blocks) (From 1st April 2022) | 3.00% | 3.00% | 6.00% |
Limitation in Composition Scheme:-
1. Input tax credit in not available in composition scheme.
2. Composition registered person cannot supply goods through e-commerce portal
3. Composition scheme is applied PAN India basis. For example if a person registered in Delhi and Haryana having the same PAN then he has to opt the composition levy for both states.
4. Composition registered person cannot issue taxable invoice under GST. He also cannot collect GST from his customers.
5. Taxable person have to pay tax at normal rate from the date on which his aggregate turnover exceeds the threshold limit.
6. If the GST officer has reasons to believe that a taxable person was not eligible to pay tax under Composition Levy then such person shall have to pay tax at normal tax. Such person is also liable to a penalty and interest.
Withdrawal from Composition Scheme under GST: – A registered person under composition scheme has to file an application in Form GST CMP – 04 for withdrawal from the scheme. A registered person who does not satisfy any provision of the scheme also required to file Form GST CMP – 04 within 7 days of occurrence of such events.
Composition Scheme GST return due dates:- GST composition dealers need to furnish only one return in a year. Form GSTR 4 is the GST Return for composition dealers. As per law, the due date for filing GST return in Form GSTR 4 is 30th April of following the assessment year. All taxpayers who opted for composition levy scheme must file GSTR 4 irrespective of turnover.
Composite registered person also required to file Form GST ITC – 01 within 30 days from the date of withdrawal from composition scheme. Form GST ITC – 01 containing the details of stock of inputs and inputs contained in semi finished goods or finished goods on the date on which composition scheme option is withdrawn. However, he will be able to take input tax credit on input held in stock on the day immediately preceding the date from which he becomes liable to pay tax as regular taxpayer.
Composition Scheme Forms under GST: – The following with various purposes has been notified by GST:-
Form GST CMP 01 – Intimation to pay tax under Composition Scheme. In respect of registered under existing law migrating on the appointed day.
Form GST CMP 02 – Intimation to pay tax under composition scheme. This form is applied on persons who registered under the GST Act.
Form GST CMP 03 – Intimation of details of stock on date of opting for composition scheme. In respect of registered peron under the existing law migrating on the appointed day.
Form GST CMP 04 – Application or intimation for withdrawal from composition scheme.
Form GST CMP 05 – Notice for denial of option to pay tax under composition scheme.
Form GST CMP 06 – Reply in respect of show cause Notice.
Form GST CMP 07 – Acceptance or rejection order of show cause notice reply.
Form GST CMP 08 – Payment of self-assessed tax under composition scheme.
Form GST REG 01 – Application for registration under composition scheme.
Form GSTR 4 – Return for F.Y. of taxpayer who has opted for composition scheme.
Form GSTR 9A – Annual Return in respect of Composition Scheme Taxpayer.
Form ITC – 03 – reversal of ITC or payment of tax on inputs held as stock, semi finished goods, finished goods and capital goods under section 18(4) of CGST Act.
Also See, “Tax Exemptions for Startups“
Also See. “Equalisation Levy with Examples“
Also See, “GST Refund on Inverted duty Structure“
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