The composition scheme in GST is a simplified tax option for small businesses with fixed tax rates and reduced compliance requirements. Find out about eligibility, benefits, and filing processes, including the latest updates. Whether you're a manufacturer, trader, or restaurant owner, this guide has everything you need to know. Whether you're a manufacturer, trader, or restaurant owner, this guide has everything you need to know.
What is the Composition Scheme in GST?
It is an Option for Specified categories of small taxpayers to pay GST at very low rates on the basis of turnover. It provides ease in compliance procedures as returns are filed on a quarterly basis.
Who Can Opt for the Composition Scheme in GST?
Businesses with an aggregate turnover of up to ₹1.5 crore (₹75 lakh for special category states) in the case of goods suppliers or up to ₹50 lakh in the case of service providers are eligible to opt for the composition scheme under GST.
composition dealer can also supply services to an extent of ten percent of turnover, or Rs. 5 lakhs, whichever is higher.
Special category states like Arunachal Pradesh, Assam, Jammu & Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh, and Uttarakhand have a threshold limit of Rs 75 lakhs for opting for the composition scheme.
Who Cannot Opt for the Composition Scheme in GST?
Supplier engaged in making any supply of goods or services that are not leviable to tax, i.e., exempt supply.
Supplier engaged in making any interstate outward supplies of goods or services.
Person supplying any goods through an electronic commerce operator who is required to collect tax at source under Section 52.
Manufacturer of ice cream, panmasala, tobacco, and aerated waters or notified supply of services.
Supplier who is either a casual taxable person or a non-resident taxable person.
Entities registered as input service distributors (ISD).
Conditions To Be Fulfilled to Opt For The Composition Scheme
Person opting for composition scheme shall mention the words "Composition taxable person, not eligible to collect tax on supplies" at top of the bill of supply issued by him and shall also mention "Composition taxable person" at his place of business.
The supplier will be required to issue a bill of supply instead of a tax invoice.
Tax shall not be collected from the recipient of supply.
Input tax credit shall not be availed of on purchases.
The dealer cannot supply goods not taxable under GST, such as alcohol.
The taxpayer is required to pay tax at normal rates under the Reverse Charge Mechanism (RCM)
If a taxable person has different segments of businesses under the same PAN, they all must register all such business under the composition scheme collectively or opt out of the scheme.
However, there is no restriction on procuring goods from interstate suppliers.
How to Opt for Composition Scheme?
Log in to gst.gov.in using your GSTIN credentials.
Navigate to ‘Services’ > ‘Registration’ > ‘Application to Opt for Composition Levy.’
Fill in the required details in the CMP-02 form and submit it.
Once approved, ensure that you meet the ongoing eligibility requirements.
Can a Dealer Registered under Composition Scheme Issue Bills?
Dealers under the composition scheme are not allowed to issue tax invoices, as they don't collect GST from customers. Instead, they must provide a bill of supply, which clearly states:
No GST has been charged.
That they are registered under the composition scheme in GST.
This keeps things transparent between the business and its customers.
What are the GST Rates applicable to the Composition Dealer?
Type Of Business | CGST | SGST | Total |
Manufacturers and Traders (Goods) | 0.5% | 0.5% | 1.0% |
Restaurants (Not Serving Alcohol) | 2.5% | 2.5% | 5.0% |
Other Service Providers | 3.0% | 3.0% | 6.0% |
How Does a Composition Dealer Make GST Payments?
Suppliers registered under the composition scheme will have to bear the payment of GST for the supplies made by them.
The GST payment is done quarterly through the CMP-08 form. The due date of CMP-08 is the 18th of the month following the end of each quarter. For example, the due date of CMP-08 for the 1st quarter (April-June) is 18th July.
Additionally, composition taxpayers are required to file the annual return, GSTR-4, by 30th April of the following financial year.
Returns Required to Be Filed by Composition Dealers
One of the biggest advantages of the composition scheme is reduced compliance. Dealers only need to file:
CMP-08: Quarterly statement for tax payments.
GSTR-4: Annual return summarizing transactions.
This simplicity saves time and resources, making it ideal for small businesses.
What are the Advantages of Composition Scheme?
Lower Rates of Taxes: Pay a given percentage on your turn over, greatly reducing tax liability.
Simplified Compliance: No complex ITC calculations or tedious return filling in multiple copies.
Cost-Effective: Reduction in paperwork reduces the costs involved in accounts and compliance.
Focus on business: Free up time to concentrate on growth and operations, not tax headaches.
What are the Disadvantages of Composition Scheme?
Despite the perks, the scheme isn't without its limitations.
No input tax credit: Dealers cannot claim credit for GST paid on purchases.
Limited Scope: cannot be sold even on interstate platforms like Amazon or Flipkart.
Customer perception: Certain clients might feel more comfortable receiving a GST-inclusive tax invoice, which this scheme does not provide.
Conclusion
The composition scheme in GST is a perfect solution for small businesses that seek simplification in tax compliance. Though it may have limitations, benefits arising from reduced tax liability and ease of compliance make it worthwhile.
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