Composition scheme under GST
GST Composition Scheme is a simple and hassle free scheme available for Small businesses who are running short of resources for carrying out compliance activities and also for business looking at easier compliance with less paper work and filing procedures. Among the various options available, the Composition Scheme stands out for its simplicity and tax benefits, particularly for small businesses. However, understanding the nuances and intricacies of this scheme is crucial to ensure compliance and reap its benefits effectively.
Understanding the GST Composition Scheme
The GST Composition Scheme is designed to provide relief to small businesses by offering a simplified compliance framework and lower tax liabilities. Under this scheme, eligible businesses can pay GST at a fixed rate based on their turnover, without the hassle of maintaining detailed records or filing multiple returns. However, it’s essential to meet certain eligibility criteria and adhere to specific guidelines to avail of these benefits.
Eligibility Criteria for GST Composition Scheme
1. Aggregate Turnover Limit: The aggregate turnover of the business should not exceed ₹1.5 crores in the preceding financial year. It’s crucial to monitor turnover regularly to ensure continued eligibility for the scheme. For Service Providers, the turnover limit is Rs. 50 lakhs.
2. Intra-State Supplies: The Composition Scheme is applicable only for businesses engaged in intra-state supplies. Inter-state transactions are not covered under this scheme.
3. Under Section 10 of the CGST Act, 2017 Manufacturers, Traders/Dealers and restaurants can opt for Composition Scheme. Service providers can also opt for composition scheme as per CGST (Rate) Notification No 2/2019 dtd 07th March 2019. A separate composition has been introduced on 31st March 2022 for Brick Manufacturers.
Advantages of the GST Composition Scheme
Opting for the GST Composition Scheme offers several advantages for eligible businesses:
1. Simplified Compliance : Composition dealers are required to file quarterly returns instead of monthly returns, reducing the compliance burden significantly.
2. Lower Tax Liabilities : Composition dealers are subject to a lower GST rate based on their business category, resulting in reduced tax liabilities compared to regular taxpayers.
3. Ease of Doing Business : By eliminating the need for detailed record-keeping and tax calculations, the Composition Scheme enables businesses to focus on their core operations.
Exclusions from GST Composition Scheme
In respect of the following categories of Business, GST Composition Scheme is not applicable :-
- Manufacturers of Ice Cream, Pan Masala , Tobacco Products
- If your business is dealing with Inter state supplies (ie) If you supply out of your State
- Casual and Non resident Tax payers
- Businesses having turnover over exceeding Rs. 1.50 Crores (or) 50 Lakhs , as the case may be
- Businesses supplying through e commerce operators. However as per latest amendment, they can supply within their state through e commerce operators.
Rates of GST under GST Composition Scheme
| Type of Business under GST Composition Schme | CGST | SGST |
| Traders / Dealers | 0.50% | 0.50% |
| Manufacturers | 1% | 1% |
| Restaurants | 2.5% | 2.5% |
| Service Providers | 3% | 3% |
Conditions for availing GST Composition Scheme
No ITC :- The taxpayers who have opted for GST Compositino Scheme cannot claim Input tax credit on their purchases. It becomes their cost
Bill of Supply :- Tax payers who have opted for GST Composition scheme cannot issue Tax invoice. Instead they shall issue “Bill of Supply”
They shall indicate in their invoice that they are a GST Composition scheme opted tax payer
Also they shall display a Board in the business premises that they are covered under GST Composition Scheme and not eligible to collect GST
GST composition scheme tax payers cannot collect GST from their customers.
They shall pay GST under composition scheme out of the their Sales/Service Charges only.
Manufacturers and Traders can provide services upto 10% of their turnvoer or Rs. 5 Lakhs whichever is higher
GST payments shall be made once in every quarter.
Eventhough concessional rate of tax is applicable for GST Composition scheme, the GST under Reverser Charge Mechanism (RCM) is applicable to Composition dealers and RCM tax shall be payable by Composition dealers at applicable rates.
Disadvantages of GST Composition Scheme
1. The Input tax credit (ITC) on purchases is not available for composition dealers. Effectively it becomes cost for the businesses.
2. The Composition dealers cannot collect GST from their customers. The same has to be paid out of their pocket. This becomes an additional cost for the business
3. The GST Composition tax payers cannot sell / deal outside the state or Export goods/services.
Return filing Obligations under GST Composition Scheme
CMP – 08 – Quarterly Statement – Tax under the GST Composition scheme shall be paid by the tax payer on or before 18th of the month following the end of Quarter. (ie) For April to June Quarter GST shall be paid on or before 18th of July.
GSTR 4 – Annual Return – to be filed on or before 30th April following the end of the Financial year.
The GST Composition Scheme presents a valuable opportunity for small businesses to streamline their tax compliance and reduce their tax burden. However, it’s imperative for businesses to understand the eligibility criteria, comply with the prescribed guidelines, and navigate the scheme diligently to reap its benefits effectively. By adhering to the outlined considerations and seeking professional guidance when needed, businesses can leverage the Composition Scheme to thrive in the GST era while ensuring compliance with regulatory requirements.
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