Learn about the Composition Scheme in GST, which allows registered taxable persons with a turnover of up to Rs 150 Lakhs (Rs 75 Lakhs for selected states) to pay taxes at reduced rates without availing Input Tax Credit. Explore eligibility criteria, recent updates, and the increased turnover limit for the composition scheme.
When the GST department implemented the composition scheme, it exclusively applied to businesses with a turnover of up to 150 Lakhs. Additionally, for North-eastern states such as Sikkim and Himachal Pradesh, the limit was set at 75 lakhs due to their comparatively smaller tax base.
CONDITIONS FOR COMPOSITION SCHEME
- A person who is not engaged in the supply of services. A person opting for composition levy u/s 10(1), i.e., Manufacture, Caterers, Trader. Cannot supply any service (taxable or exempt) except as allowed in not exceeding 10% of turnover in a State and Union territory in the preceding financial year or 5 lakh rupees, whichever is higher.
- A person not engaged in making the supply of goods or services not leviable to tax under this Act.
A person not making any Inter-state supplies of goods or services related to: –
I. alcoholic liquor for human consumption,
ii. any of the petroleum products, petroleum crude, high-speed diesel,
iii. natural gas, and
iv. aviation turbine fuel
The above Items have been kept out of the purview of GST.
- A person not accomplishing any supply through an electronic commerce operator of goods or services who is required to collect tax.
Despite being barred from making supplies through an E-Commerce operator registered under the composition scheme, a person is still allowed to make supplies through other E-Commerce operators.
- A Person is not a manufacturer of such goods and services as may be notified by the Government on the council’s recommendations.
- Ice cream and other soda, whether containing cocoa.
- Pan Masala
- Aerated Water
- Tobacco and manufactured tobacco substitutes.
- Fly ash bricks, Fly ash aggregates, Fly ash blocks.
- Fossil meals bricks or similar siliceous earth
- Building bricks
- Earthen or roofing tiles
- A Person is neither a Casual Taxable nor a Non-Resident taxable person.
A Casual taxable person registered in Madhya Pradesh wants to set up an exhibition of his goods in Maharashtra. He usually would have registered himself as a casual person in Maharashtra for the duration of the presentation, discharged his liabilities there, and got himself deregistered post the expiry of his registration as a “Casual taxable person.” However, in this case, if he wishes to opt for this option, he will have to opt out of his composition taxable registration in Madhya Pradesh and pay tax as a regular taxpayer.
GST COMPOSITION SCHEME RULES
The GST composition scheme is simplified for businesses with a turnover of up to Rs. 1.5 crores. The method reduces the compliance burden for small businesses by allowing them to pay GST at a fixed rate on their turnover without maintaining detailed records.
Here are some of the critical rules of the GST composition scheme:
- Eligibility: Any taxpayer whose annual turnover is at most Rs. 1.5 crore can choose a composition scheme. However, certain businesses, such as manufacturers of ice cream, pan masala, tobacco products, and suppliers of non-taxable goods/services, are not eligible for the scheme.
- Tax rate: Under the composition scheme, taxpayers must pay a fixed tax rate on their turnover. For manufacturers and traders, the rate is 1%, while for restaurant owners, it is 5%, and for others, it is 6%.
- Input tax credit: Businesses registered under the composition scheme cannot claim an input tax credit.
- Compliance: Businesses under the composition scheme must file quarterly rather than monthly returns.
- Limitations: Businesses under the composition scheme cannot make inter-state sales or export goods. They are also not allowed to collect GST from their customers and hence cannot issue GST invoices.
- Voluntary withdrawal: Businesses can withdraw from the composition scheme and start paying tax under the regular scheme if they exceed the threshold limit of Rs. 1.5 crores.
Additionally, it is important to note that businesses opting for the composition scheme cannot avail themselves of the input tax credit benefits. Moreover, they should carefully evaluate the scheme’s benefits and drawbacks before choosing it.
Furthermore, it is crucial for businesses to understand that by opting for the composition scheme, they are foregoing the opportunity to claim input tax credit. Therefore, they should thoroughly assess the advantages and disadvantages of the scheme before making a decision.
Thus, businesses need to consider the implications of the composition scheme and weigh them against the potential benefits in order to make an informed choice.
The GST Composition Scheme benefits small businesses that want to simplify their taxation process and reduce tax liability.
RATE OF TAX UNDER COMPOSITION SCHEME
| S.No. | Sec under which composition levy has opted | Categories of the registered person | Central Rate | State/UT Rate | Total Rate |
| 1. | Sub-sec (1) and (2) of sec 10 | Manufactures other than manufacturers of such goods as may be notified by the government | 0.5% | 0.5% | 1% |
| 2. | Sub-sec (1) and (2) of sec 10 | Suppliers are making supplies. Example: Catering, Restaurants, or any other services were food supply and drinks for human consumption. | 2.50% | 2.50% | 5% |
| 3. | Sub-sec (1) and (2) of sec 10 | Other Suppliers (Traders not involved in Manufacture) | 0.50% | 0.50% | 1% |
| 4. | Sub-sec (2A) of sec 10 | Registered persons not eligible under the composition levy but eligible to opt to pay tax | 3% | 3% | 6% |
REGISTRATION PROCEDURE UNDER THE COMPOSITION SCHEME
The Composition Scheme is a simplified tax scheme for small taxpayers under India’s Goods and Services Tax (GST).
Registration Procedure
- Eligibility: First, check your eligibility for the Composition Scheme. The following taxpayers are eligible:
- A taxpayer whose annual turnover is less than Rs. 1.5 crore (Rs. 75 lakhs for unique category states)
- A supplier of goods (except for ice cream, pan masala, tobacco, and aerated drinks) or a restaurant service provider with a turnover of less than Rs. 50 lakhs.
- Log in to the GST portal with your valid credentials.
- Form CMP-02: Once you have logged in, select the “Services” tab and click on “Registration” under the “Registration” tab. Then, click on “Application for opting for the Composition Levy” and fill up Form CMP-02. This form requires the following details:
- GSTIN & PAN
- The legal name of the business
- Email address and mobile number
- Date from which the Composition Scheme has opted
- Details of stocks and inward supplies
- Submit the form: After filling up the form, click on the “Submit” button.
- Form CMP-03: Once you have submitted Form CMP-02, a reference number will be generated, and you need to file Form CMP-03 within 60 days of opting for the Composition Scheme. This form requires you to furnish the following details:
- Stock details
- Inward supply details
- Tax liability details
- Payment of tax
- Verification: After filing the form, you must verify it using Digital Signature Certificate (DSC) or Electronic Verification Code (EVC).
- Acknowledgment: After successful verification, a disclosure will be generated and sent to the registered email address and mobile number.
Following these steps, you can register for the Composition Scheme under GST.
FILING RETURNS UNDER THE GST COMPOSITION SCHEME
Under the Goods and Services Tax ACT(GST) composition scheme, small taxpayers can pay GST at a lower rate and file returns quarterly instead of monthly. Here’s how you can file returns under the GST composition scheme:
- Register for the composition scheme: You must first register for the GST composition scheme by filling out the GST CMP-02 form on the GST portal.
- Collect GST from customers: As a composition dealer, you cannot charge GST on your sales, but you must pay GST out of your pocket. So, inform your customers that you are a composition dealer and cannot charge GST separately.
- File quarterly returns: As a composition dealer, you must file a quarterly return in Form GST CMP-08 on the GST portal. This form must be filed by the end of the quarter.
- Pay tax: You must pay tax for the quarter by the same due date as the filing of Form GST CMP-08. You can make the payment through the GST portal.
- File annual return: At the end of the financial year, you must file a yearly return in Form GSTR-4 on the GST portal by the 30th of April of the next financial year.
It’s important to note that if your turnover exceeds the threshold of Rs. 1.5 crore in a financial year, you will no longer be eligible for the composition scheme and will have to register as a regular taxpayer.
REQUIREMENT AFTER OPTING OUT/DENIAL UNDER THE COMPOSITION SCHEME
Moreover, this action was taken to remove all the Input Tax Credit (ITC) from the credit of such a person, as he would not be entitled to claim ITC once he started to pay tax as a composition taxpayer.
Furthermore, on similar grounds, once a person opts out of the composition scheme, he will pay tax as a regular taxpayer and will be liable to collect tax on his outward supplies and claim ITC on inward supplies. Therefore, he shall be allowed the benefit of ITC on the stock lying with him as of the date he starts paying taxes as a regular taxpayer.
Consequently, all such persons who have opted out or are being denied a tax can file a FORM GST ITC-01 to avail themselves of the benefit of ITC on the stock lying with them as of the date of opting out or refusing to pay tax under the composition scheme.
Q.1 What is the specified rate of composition levy?
Ans. This scheme is designed for small businesses with a turnover of up to Rs. 1.5 crores to simplify the compliance requirements and reduce the tax burden. The specified rate of composition levy depends on the country and the type of goods or services being supplied. Under the Goods and Services Tax (GST) regime, the specified rate of composition levy for manufacturers, traders, and restaurants is 1%, 1%, and 5%, respectively.
Q.2 What is the eligibility category for opting for a composition levy? These are the Special Category States in which the turnover limit for Composition Levy for Central tax and State tax purpose shall be Rs. 50 lakhs?
Ans. The composition levy scheme is available to certain categories of taxpayers under the Goods and Services Tax (GST) regime. The eligibility criteria for opting for the composition levy are as follows:
- Small taxpayers whose annual turnover of up to Rs. 150 lakhs in the previous financial year can opt for the composition scheme.
- Manufacturers, traders, and restaurant owners with an annual turnover of up to Rs. 75 lakhs can also opt for the composition scheme.
- Service providers with an annual turnover of up to Fifty lakhs can opt for the composition scheme.
The Special Category States in which the turnover limit for Composition Levy for Central tax and State tax purposes shall be Rs. 50 lakhs are as follows:
- Arunachal Pradesh
- Manipur
- Meghalaya
- Mizoram
- Nagaland
- Sikkim
- Tripura
In these states, the annual turnover limit for opting for the composition scheme is lower for small businesses to take advantage of the scheme’s benefits.
Q.3 What are the Benefits of Composition Scheme?
Ans. As per the provisions of the GST (Goods and Services Tax) Act, a person availing of the composition scheme is allowed to pay tax at a lower rate based on their turnover. However, the turnover limit for availing of the composition scheme is Rs. 1.5 crore for businesses dealing in goods and Fifty lakhs for businesses dealing in services.
Suppose a person who avails the composition scheme during financial year crosses the turnover of Rs. 75 lakhs/50 lakhs (For special category) during the year. In that case, they will only pay tax under the composition scheme for the remainder of the year, i.e., on 31st March. In such a case, they will be required to pay tax at the regular rates applicable to their business category from the date they cross the threshold limit of Rs. 75 lakhs/50 lakhs.
Therefore, if a person crosses the turnover threshold in December, they will not be eligible to pay tax under the composition scheme from December to March. They will have to pay tax at the regular rates applicable to their business category for this period.
Q.4 A person who avails composition scheme during the financial year crosses the turnover of Rs. 75 lakhs/50 lakhs (For special Category) during the year he crosses the turnover of Rs.75 lakhs/50 lakhs (For special Category) in December? Will he is eligible to pay tax under the composition scheme for the remainder of the year till 31st March?
Ans. As per the provisions of the GST (Goods and Services Tax) Act, a person availing of the composition scheme is allowed to pay tax at a lower rate based on their turnover. However, the turnover limit for availing of the composition scheme is Rs. 1.5 crore for businesses dealing in goods and Fifty lakhs for businesses dealing in services.
Suppose a person who avails the composition scheme during financial year crosses the turnover of Rs. 75 lakhs/50 lakhs (For special category) during the year. In that case, they will only pay tax under the composition scheme for the remainder of the year, i.e., on 31st March. In such a case, they will be required to pay tax at the regular rates applicable to their business category from the date they cross the threshold limit of Rs. 75 lakhs/50 lakhs.
Therefore, if a person crosses the turnover threshold in December, they will not be eligible to pay tax under the composition scheme from December to March. They will have to pay tax at the regular rates applicable to their business category for this period.