The GST composition scheme simplifies GST formalities for taxpayers whose turnover does not exceed the ₹1.5 Crores mark. These taxpayers need only pay GST at a fixed rate, and so, small businesses benefit the most with the composition scheme under GST.
Moreover, the GST search tool makes it easy to know if entities have opted in for the scheme. All you need is the GSTIN information, and you can verify the details online. To learn more about the GST composition scheme, read on.
The composition scheme has numerous features that registered taxpayers need to be aware of. These features include:
Reduced tax liability as the tax rates of the composition scheme are lower than that of regular GST. Generally, the tax applicable under the composition scheme is 1% of annual turnover.
The tax rates in the composition scheme vary based on the type of business. However, it ranges between 1% - 5%.
Registered taxpayers need to file one quarterly return and not multiple returns for one quarter.
Taxpayers registered under the composite have to generate a bill of supply and not the tax invoice.
If the taxpayer has multiple businesses under one PAN, they will have to choose the composite scheme for all businesses or opt out completely.
Only certain taxpayers can opt for the composite scheme after meeting the threshold limit. These include manufacturers of goods, dealers and restaurant owners who do not serve alcohol.
When transactions are made under the reverse charge mechanism, the dealer will have to pay tax as per the normal GST rate.
The GST authorities permit a range of manufacturers, service businesses and traders to register under GST composition scheme. However, the following parties are excluded:
Non-resident or casual taxable persons
Businesses that purchase goods from unregistered suppliers or manufacturers
Supplies that undertake the supply of services and goods
Supplies that undertake the supply of goods that are exempted from the GST Act
Manufacturers that produce tobacco, pan masala and other such products
Manufacturers of edible ice including, ice cream
Businesses that sell through e-commerce websites that collect tax at source
The GST composition scheme limit varies depending on the sector.
For service providers, the turnover limit is ₹50 Lakhs for a financial year
For manufactures, traders, and restaurants not serving alcohol, the limit is ₹1.5 Crores for any financial year if the taxpayer is newly registered
For existing registered entities mentioned in the above point, the limit is ₹1.5 Crores for the previous fiscal year
It is important to remember that if your turnover exceeds the limits stipulated above, you will have to shift to the regular GST scheme and can no longer enjoy the benefits of composite scheme.
To be eligible for the GST composition scheme, small business owners need to meet the annual turnover limit as specified in the rules. Your turnover should be under ₹75 Lakhs. However, the GST composition scheme limit for certain states is ₹50 Lakhs. These states include:
If you meet this criterion and fall in the category of small taxpayers who can opt for the composition scheme in GST, you are eligible. Who can opt for the composition scheme is explained below.
A business owner can opt for the GST composition scheme as long as the annual turnover falls within the specified limit. You can opt for the scheme is you are:
Small manufacturing unit
Service sector unit
Fruit and vegetable vendors and more
Under the GST composition scheme, the tax rate is applicable on the category/ type of registered entity. For example, with regard to the composition scheme, under GST for services, the rate is different for specific entities. Currently, the applicable rates are:
Category/ type of registered taxpayer
Manufacturers and traders of goods
Restaurants (not serving alcohol)
Traders and other eligible entities
Disclaimer: The GST rates are subject to change
Applying for the composite scheme of GST is simple and digital. All you have to do is fill out the applicable form with the tax authorities. However, the form differs based on whether you are an existing taxpayer or a new taxpayer.
As an existing taxpayer, you can opt for composition levy under GST by filling out the Form GST-CMP-02. Do remember that you need to submit this form at the GST portal before the financial year starts.
If you are a new taxpayer, you will have to fill Form GST REG-01 on the GST portal. This form is a new registration form and you need to mention your choice of opting for the composition scheme in GST.
A crucial point to remember if you have opted for the composite GST scheme is that you cannot raise a tax invoice. This means that you cannot charge tax and have to pay it from your pocket.
Instead, you will have to raise a bill of supply, which clearly states that you are registered under the composition GST scheme and cannot collect taxes.
The composition scheme carries the following advantages and disadvantages:
Lower compliance limits
Limitation on business territory
Lower tax liability
Non availability of Input Tax Credit
Lower tax rate brings higher liquidity
Non-taxable goods cannot be submitted through an e-commerce portal
GST composition scheme is an alternative tax payment option that small taxpayers can opt for. Under this scheme, the tax liability and compliance cost get reduced while making the tax process simpler.
The eligibility for composite scheme in GST is based on the turnover. The taxpayer should have a turnover under ₹75 Lakhs, ₹50 Lakhs in some states, in the previous financial year.
Any taxpayer who does not meet the turnover threshold is not eligible for the composite GST scheme. Additionally, non-taxable individuals, manufactures of certain items, businesses that purchase from unregistered entities, and others cannot opt for the scheme. The detailed list of entities not eligible to opt for the scheme is available on the website.
No, you cannot claim Input Tax Credit when registered under the GST composition scheme.
The difference is the tax rate. Under the regular scheme, the tax rate can go up to 28% but under the composite scheme, it is capped at 5%.
No, Input Tax Credit is not available under the composition scheme.
One of the most important GST composition scheme rules is that your turnover cannot exceed the limit specified by the tax authorities. If your turnover exceeds, you will have to shift to the regular scheme.
The GST composition scheme limit, in terms of turnover of the taxpayer, is ₹75 Lakhs and ₹50 Lakhs in some states like Himachal Pradesh, Tripura, Sikkim, Nagaland, Mizoram, Meghalaya, Manipur, Assam, Arunachal Pradesh.