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What is Composition Scheme under GST?

Restrictions for Composition Scheme users
Important Points of Composition Scheme

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GST-composition sceme

GST Composition Scheme - Composition Tax under Revised GST Law.

A registered person whose aggregate turnover in the preceding financial year did not exceed seventy five lakh rupees may opt to pay, in lieu tax at the normal rates, tax at such rate as prescribed under composition levy

  • A registered person
  • whose aggregate turnover in the preceding financial year did not exceed seventy five lakh rupees
  • may opt to pay -- shall electronically file an intimation duly signed, on the Common Portal
  • prior to the appointed day, but not later than thirty days after the said day
  • shall issue bill of supply for supplies
  • pay tax at such rate as prescribed under composition levy

Conditions and restrictions for composition levy

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The person exercising the option to pay tax under composition levy shall comply with the following conditions:
(a) he is neither a casual taxable person nor a non-resident taxable person;
(b) the goods held in stock by him on the appointed day have not been purchased in the course of inter-State trade or commerce or imported from a place outside India or received from his branch situated outside the State or from his agent or principal outside the State, where the option is exercised by a migrated person from the existing law;
(c) the goods held in stock by him have not been purchased from an unregistered person and where purchased, he pays the tax on reverse charge basis as the recipient;
(d) he shall pay tax on inward supply of goods or services or both received from unregistered persons on reverse charge basis as the recipient;
(e) he was not engaged in the manufacture of such goods as may be notified by the Government on the recommendations of the GST council;
(f) he shall mention the words “composition taxable person, not eligible to collect tax on supplies” at the top of the bill of supply issued by him; and
(g) he shall mention the words “composition taxable person” on every notice or signboard displayed at a prominent place at his principal place of business and at every additional place or places of business.

The registered person paying tax under the composition levy may not file a fresh intimation every year and he may continue to pay tax under the scheme subject to fulfilling prescribed conditions.

An exception to the general rule that NO service provider shall be eligible for Composition Scheme

Registered person engaged in any supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration - Tax Rate 2.5%

Q1. What is the tax rate applicable on a composition dealer?

Ans. A registered taxpayer, who is registered under the Composite Scheme will pay tax at a rate not more than 1% for manufacturer, 2.5% for restaurant sector and 0.5% for other suppliers of turnover.

Q2. Can a dealer involved in interstate supplies opt for Composition Scheme?

Ans. No, Composition Scheme is available only for intra-state supplies. If a dealer is involved in inter-State supplies, then he cannot opt for the scheme.

Q3. Must a Composition Dealer maintain detailed records?

Ans. No, a dealer registered under composition scheme is not required to maintain detailed records as in the case of a normal taxpayer.

Q4. Do Composition Dealers have the option to avail Input Tax Credit?

Ans. No, a Composition Dealer is not allowed to avail input tax credit of GST paid to their supplier.

Q5. Can a Composition Dealer issue Tax Invoice?

Ans. No. Since a Composition Dealer is not allowed to avail input tax credit, such a dealer cannot issue a tax invoice as well. A buyer from composition dealer will not be able to claim input tax on such goods.

Q6. Which returns are required to be filed by a taxable person registered under Composite Scheme?

Ans. The taxable person is required to furnish only one return i.e. GSTR-4 on a quarterly basis and an annual return in FORM GSTR-9A.

Q7. Is liability to pay taxes under Reverse Charge Mechanism covered under the Composite Scheme?

Ans. Any tax payable under Reverse Charge Mechanism will not be covered under the scheme. These taxes will be liable to be paid as a normal tax payer.

Q8. Can a Composition Dealer collect composition tax separately?

Ans. No, a Composition Dealer is not allowed to collect composition tax from the buyer.

A good accountant will help you file tax returns, prepare annual accounts and claim expenses — so you can be confident of doing things properly and staying on the right side of the Goods and Services Tax Department.

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