Composition Scheme is a simple and easy scheme under GST for taxpayers. Small taxpayers can get rid of tedious GST formalities and pay GST at a fixed rate of turnover. This scheme can be opted by any taxpayer whose turnover is less than ₹ 1.5 crore.
1. Who can opt for Composition Scheme
A taxpayer whose turnover is below ₹ 1.5 crore can opt for Composition Scheme. In case of North-Eastern States and Himachal Pradesh, the limit is ₹ 75 lakh.
As per the CGST (Amendment) Act, 2018, a composition dealer can also supply services to an extent of ten per cent of turnover, or ₹ 5 lakh, whichever is higher. This amendment will be applicable from the 1st of Feb, 2019.
Turnover of all businesses registered with the same PAN should be taken into consideration to calculate turnover.
Notification No. 2/2019-Central Tax (Rate) came to be issued on 07.03.2019 providing for the composition scheme for service providers. Said notification has been amended vide Notification No. 9/2019-Central Tax (Rate) dt. 29.03.2019. Said scheme is made applicable from 01.04.2019. Said scheme shall mainly benefit those service providers who do not avail significant input tax credit and/or who supply the services mainly to such recipients who do not avail any input tax credit. The Government has set the threshold turnover for service providers at ₹ 50 lakh to be eligible for this scheme.
2. Who cannot opt for Composition Scheme
The following people cannot opt for the scheme:
♦ Manufacturers of ice cream, pan masala, or tobacco
♦ A person making inter-State supplies
♦ A casual taxable person or a non-resident taxable person
♦ Businesses which supply goods through an e-commerce operator
3. What are the conditions for availing Composition Scheme?
The following conditions must be satisfied in order to opt for composition scheme:
♦ No Input Tax Credit can be claimed by a dealer opting for composition scheme.
♦ The dealer cannot supply GST exempted goods.
♦ The taxpayer has to pay tax at normal rates for transactions under the Reverse Charge Mechanism.
♦ If a taxable person has different segments of businesses (such as textile, electronic accessories, groceries, etc.) under the same PAN, they must register all such businesses under the scheme collectively or opt out of the scheme.
♦ The taxpayer has to mention the words 'composition taxable person' on every notice or signboard displayed prominently at their place of business.
♦ The taxpayer has to mention the words 'composition taxable person' on every bill of supply issued by him.
♦ As per the CGST (Amendment) Act, 2018, a manufacturer or trader can also supply services to an extent of ten per cent of turnover, or ₹ 5 lakh, whichever is higher. This amendment will be applicable from the 1st of Feb., 2019. Earlier the limit was up to ₹ 5 lakhs.
4. How can a taxpayer opt for composition scheme?
Notification No. 9/2019-Central Tax (Rate) stipulates that the Central Goods and Services Tax Rules, 2017, as applicable to a person paying tax under section 10 of the said Act shall, mutatis mutandis, apply to a person paying tax under this notification. Hence the procedures provided for the composition supplier of goods shall equally apply to even the composition supplier of services. Accordingly, an intimation in FORM GST CMP-02 needs to be filed if an existing registered person desires to opt for the composition. Said intimation has to be filed prior to the commencement of the financial year for which the option to pay the tax is exercised. All the registered persons opting to pay the tax under the scheme shall file the form on the portal on or before 30.06.2020 (For Financial Year 2020-2021) [Extension granted in view of COVID19 pandemic]Also the statement in FORM GST ITC-03 needs to be filed within a period of sixty days from the commencement of the relevant financial year detailing the inputs or capital goods in stock on the day of opting for the composition. A person applying for a new registration and desiring to pay the tax under the said scheme shall file FORM GST REG-01 and intimate therein the desire to pay tax as per the scheme.
5. How should a Composition Dealer raise bill?
A Composition Dealer cannot issue a tax invoice. This is because a Composition Dealer cannot charge tax from their customers. They need to pay tax out of their own pocket.
Hence, the dealer has to issue a Bill of Supply.
The dealer should also mention "composition taxable person, not eligible to collect tax on supplies" at the top of the Bill of Supply.
6. What are the GST rates for a composition dealer?
Following chart explains the rate of tax on turnover applicable for composition dealers:
| Composition Scheme - Applicable GST Rates |
| Types of Business |
CGST |
SGST |
Total |
| Manufacturer & Trader (Goods) |
0.5% |
0.5% |
1% |
| Restaurants not serving Alcohol |
2.5% |
2.5% |
5% |
| Other Service Providers |
3% |
3% |
6% |
As per Notification dated 01.01.2018, turnover in case of traders has been defined as 'Turnover of taxable supplies of goods.
It is pertinent to note that GST rates in Restaurants within hotels where room tariff is greater than ₹ 7,500/- and for out-door catering is still 18% with Input Tax Credit.
7. How should GST payment be made by a composition dealer?
GST Payment has to be made out of pocket for the supplies made.
The GST payment to be made by a composition dealer comprises of the following:
♦ GST on supplies made.
♦ Tax on reverse charge
♦ Tax on purchase from an unregistered dealer*
*Only on the specified categories of goods and services and well as the notified class of registered persons with effect from 1st Feb., 2019 but is yet to be notified. Hence, not applicable until then.
As per Notification No. 20/2019 - CT dated 23.04.2019 Composition Taxable Persons are now required to pay tax quarterly till 18th of month succeeding the Quarter by filing Form GST CMP-08.
8. What are the returns to be filed by a Composition Dealer?
A dealer is required to file a quarterly return GSTR-4 by 18th of the month after the end of the quarter. Also, an annual return GSTR-9A has to be filed by 31st December of next financial year.
Due date for filing GSTR-9, GSTR-9A and GSTR-9C is extended till 30th June 2019 by CBIC for FY 2017-18
As per Notification No. 20/2019 - CT dated 23.04.2019 Composition Taxable Persons are now required to file GSTR - 4 on Annual Basis till 30th April every year.
9. What are the advantages of Composition Scheme?
The following are the advantages of registering under composition scheme:
♦ Lesser compliance (returns, maintaining books of record, issuance of invoices)
♦ Limited tax liability
♦ High liquidity as taxes are at a lower rate
Also, note that a dealer registered under composition scheme is not required to maintain detailed records.
10. What are the disadvantages of Composition Scheme?
The following are the disadvantages of registering under GST composition scheme:
♦ A limited territory of business. The dealer is barred from carrying out inter-State transactions.
♦ No Input Tax Credit available to Composition Dealers.
♦ The taxpayer will not be eligible to supply exempt goods or goods through an e-commerce portal.
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