The composition scheme of GST is an alternative method of levy of tax designed for small taxpayers whose turnover is up to Rs. 75 lakhs ( Rs. 50 lakhs in case of few States). The objective of composition scheme under GST is to bring simplicity and to reduce the compliance cost for the small taxpayers. Moreover, it is optional and the eligible person opting to pay tax under this scheme can pay tax at a prescribed percentage of his turnover every quarter, instead of paying tax at normal rate. Government has specified the rates for different class of taxpayers as below :

Sl No.	Class of Registered Assessee	Tax Rate
1	Manufacturers, other than manufacturers of such goods as may be notified by the Government (Ice cream, Pan Masala, Tobbacco prodcuts etc.)	2% (1% Central Tax + 1% State Tax) of the turnover
2	Restaurant Services	5% ( 2.5% Central tax plus 2.5% SGST) of the turnover
3	Traders or any other supplier eligible for composition levy	1% ( 0.5% Central tax plus 0.5% State tax) of the turnover

 

Eligibilty :

Composition Scheme is designed for the small tax payers for hassle-free compliance. Taxpayers whose aggregate turnover in the preceding financial year did not cross Rs. 75 lakhs can opt for the said scheme. Further, businesses dealing in goods are only eligible for this scheme but restaurant sector assessee’s can avail the said eligibility . Government has relaxed the limit of turnover for few state – taxpayers as stated below :

a) Arunachal Pradesh

b) Assam

c) Manipur

d) Meghalaya

e) Mizoram

f) Nagaland

g) Sikkim

h) Tripura

i) Himachal Pradesh

Non Eligibility :

Below listed assessee’s are not eligible to opt for the scheme :

a) a casual taxable person or a non-resident taxable person

b) suppliers whose aggregate turnover in the preceding financial year crossed Rs. 75 lakhs

c) supplier who has purchased any goods or servcies from unregistered supplier unless he has paid GST on such goods or services on reverse charge basis

d) supplier of services, other than restaurant service

e) persons supplying goods which are not taxable under GST law

f) persons making any inter-State outward supplies of goods

g) suppliers making any supply of goods through an electronic commerce operator who is required to collect tax at source under section 52; and

h) a manufacturer of Ice cream and other edible ice, whether or not containing cocoa, Pan masala and Tobacco and manufactured tobacco substitutes.

Registration under the Scheme :

For an existing taxpayer not under the scheme, registrations under the composition scheme can only be done from the beginning of the next Financial Year. The application will have to be filed on or before 31st March of the Previous Year so that returns can be filed accordingly. 

For dealers under the scheme, switch over to normal scheme can be done even during the year. However, they cannot switch over to Composition Scheme again during the same Financial Year.

Time of Tax Payment :

The taxpayer under the scheme has to pay tax on quarterly basis before 18th of the month succeeding the quarter during which the supplies were made. An intimation for payment of tax under composition scheme needs to be made by the taxable person in FORM GST CMP- 01 or FORM GST CMP- 02.

Computation of Aggregate Turnover for Composition :

Computation shall be computed on all India basis including the value of supplies, exempt supplies and exports made by all persons with same PAN but shall exclude the inward supplies under reverse charge as well as central, State/Union Territory and Integrated taxes and cess.

Input Tax Credit on Supplies :

Taxpayers availing the composition scheme are out of the credit chain. They cannot claim ITC on inward supplies. However, when they shift from composition svheme to normat scheme, the ITC on the date of transition shall be allowed.  

Similarly, no registered purchaser, making purchases from a taxable person, shall be allowed to claim ITC on goods purchased by him as the composition dealer cannot collect tax paid by him on outward supplies from his customers.

Tax Invoice / Bill of Supply :

Taxpayers paying tax under the composition scheme cannot issue tax invoice rather they can issue bill of supply in lieu of tax invoice.

Compliance Returns:

Taxpayers under the said scheme do not have to file the monthly returns rather need to electronically file quarterly returns in Form GSTR-4 on the GSTN common portal by the 18th of the month succeeding the quarter.  

Reverse Charge Mechanism for Composite Scheme Recipients :

If a person opting to pay under the composition levy receives input services / inputs from an unregistered person, the composite taxpayer has to pay GST on such supplies under reverse charge mechanism. The tax can be paid by the 18th day of the month succeeding the quarter in which such supplies were received. The information relating to such supplies should be shown by the composition taxpayer in Table 4 of return in FORM GSTR -4.

Composition Levy for Taxpayers registered in Multiple States :

If a taxpayer is registered in multiple states, then he has to exercise the option to pay taxes under composition levy for all such states and not only in one state.

Effective Date of Composition Levy :

Following can be the scenarios :

Situation	Effective date of composition levy
Persons opting for Composition Levy and been granted provisional registration (Intimation under Rule 3(1))	The appointed date is 22nd June, 2017
Persons opting for composition levy at the time of making application for new registration in the same registration application itself (Intimation under Rule 3(2))	Effective date of registration; Intimation shall be considered only after the grant of registration and his option to pay tax under section 10 shall be effective from the effective date of registration
Person, post obtaining registration, opts for composition (Intimation under Rule 3(3))	The beginning of the financial year

 

Miscellaneous Compliance’s :

• Taxpayer needs to 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
• Taxpayer 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.

Validity of the Scheme :

The option to pay tax under composition levy would remain valid so long as conditions mentioned in section 10 of the CGST Act, 2017 and Rule 3 to 5 of the CGST Rules, 2017 remain satisfied.

Withdrawal from the scheme :

The registered person under the scheme can voluntarily withdraw from the scheme by filing a duly signed or verified application in FORM GST CMP-04. Person after filing such application, may furnish a statement in Form GST ITC-01 containing details of the stock of inputs and inputs contained in semi-finished or finished goods held in stock by him on the date of withdrawal, within a period of thirty days of withdrawal.

Any intimation or application for withdrawal in respect of any place of business in any State or Union territory, shall be deemed to be an intimation in respect of all other places of business registered on the same Permanent Account Number.

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