15 Basic concepts of GST Composition Scheme at a glance

Composition Scheme under GST, outlined in Sections 10(1) and 10(2A), covers dealers in goods, restaurants, and certain service providers. Eligibility is based on turnover: ₹1.5 crores for most states under Section 10(1), ₹75 lakhs for special category states, and ₹50 lakhs under Section 10(2A) for service providers. Limited service supply is allowed for 10(1) dealers if it does not exceed 10% of turnover or ₹5 lakh, whichever is higher. Aggregate turnover includes taxable supplies, exports, exempt supplies (excluding interest/discount on loans), and interstate supplies across India. Composition taxpayers pay tax at 1% (manufacturers/traders), 5% (restaurants), or 6% (service providers under 10(2A)). They cannot claim Input Tax Credit (ITC), issue tax invoices, or sell interstate, though interstate purchases are permitted. The scheme must be applied uniformly across all GSTINs under a PAN. Returns include quarterly CMP-08 and annual GSTR-4. Enrollment for the scheme must occur at registration or before the financial year begins. Exit from the scheme is allowed anytime. Effective registration dates vary depending on the timeliness of application. Certain businesses, such as manufacturers of ice cream, pan masala, and tobacco products, and those making inter-state supplies, are ineligible.

1. Who are covered u/s 10(1) and 10(2A)?

• u/s 10(1) Dealers in goods and restaurant business are covered
• u/s 10(2A) Service providers and those who are not eligible under the above scheme are covered.

2. What is the turnover limit for opting for a composition scheme?

For the scheme u/s 10(1) Rs.1.5 crores (General states including Himachal pradesh.

Assam and Jammu & Kashmir) Rs.75 lakhs

For the states of Manipur, Mizoram, Arunachal Pradesh, Sikkim, Tripura, Nagaland, Uttarakhand, Meghalaya in the preceding FY. Under Sec 10(2A) the limit is Rs.50 lakhs in the preceding Financial Year

Example…….i).Turnover of MS textile of Odisha in the Financial year 24-25 was 1 45 00 000/-,the entity is eligible for Composition scheme in the FY 25-26

ii). If the entity in point (i) is located in Sikkim then it is not eligible as the threshold limit of Turnover for opting for the scheme in that state (75 00 000/-) has crossed .

However if the turnover of FY 24-25 wasv70 00 000/- ie within the limit of 75 00 000/-the entity is eligible for composition for the FY 25-26.

3. Can a composition scheme taxpayer covered u/s 10(1) supply services (other than restaurant service) as well?

We need to check whether these are marginal supply of services ie whether the amount of services supplied is within the limit of

10% of Turnover in a state/UT in the preceding Fy

Or

5 00 000/- whichever is higher

If MS textiles that is located in Odisha has a turnover of Rs. 65 00 000 in the preceding FY then it can supply services up to

10% of 65 00 000/- ie 6 50 000/- or

5 00 000/-

Whichever is higher.

ie. it can supply service upto 6 50 000/- in the current FY.

4.  How is the Aggregate Turnover Calculated for Eligibility for the Composition Scheme?

Calculation of Aggregate Turnover in the Preceding Financial Year:

1. Inclusions:

   • Taxable supply

   • Export of goods or services

   • Exempt supply (excluding interest, discount on loans, deposits, and advances)

   • Inter-state supply by persons having the same PAN on an all-India basis

2. Deductions:

   • Inward supplies subject to reverse charge

   • GST if included in the above amounts

Example Calculation:
Suppose SR & Co. has the following supplies:

• Taxable supplies: ₹70,00,000

• Exempt supplies: ₹10,00,000 (includes ₹2,00,000 as interest on deposits)

Aggregate Turnover:

1. Include taxable supplies: ₹70,00,000

2. Include exempt supplies (excluding interest on deposits): ₹10,00,000 – ₹2,00,000 = ₹8,00,000

Total Aggregate Turnover:
₹70,00,000 + ₹8,00,000 = ₹78,00,000

Note: The exempt supply portion represented by interest on deposits is excluded from the calculation of aggregate turnover.

5.What are the tax rates applicable for composition tax payers?

a. Tax Rates for Composition Taxpayers:

• Manufacturers: 1% of the turnover in the state (0.5% CGST and 0.5% SGST)

• Restaurants: 5% of the turnover in the state (2.5% CGST and 2.5% SGST)

• Traders: 1% of the taxable turnover (0.5% CGST and 0.5% SGST)

b. Example Calculations:

• For a Manufacturer:

  • Taxable turnover: ₹50,00,000

  • Exempt turnover: ₹8,00,000

  • Total turnover: ₹58,00,000

  • Tax payable: 1% of ₹58,00,000 = ₹58,000

• For a Trader:

  • Taxable turnover: ₹50,00,000

  • Tax payable: 1% of ₹50,00,000 = ₹50,000

c. Special Case: Composition Scheme under Section 10(2A):

• Applicable to service providers and those ineligible for the composition scheme for goods (including restaurant services)

• Tax rate: 6% (3% CGST and 3% SGST)

6. Can he take ITC ?

No

7. Can he issue a Tax invoice?

No. He has to issue a Bill of Supply

8.Can he sell inter-state ?

No

9. Can he purchase from another state?

Yes

10. When a businessman has different GSTINs under the same PAN, can he opt for the scheme only for a few, not for others?

No. Once he chooses to opt for this scheme all the registration under the same PAN are covered under the scheme.

Similarly if he comes out of the scheme either (voluntarily or otherwise) he will automatically come out of the scheme in respect of all registrations under the same PAN

11. What Returns/Statements does a composition scheme tax payer file?

Every Quarter Form CMP-08 is filed by the 18th of the month following the quarter.

Annual Return GSTR-4 has to be filed by 30th June of the succeeding Financial year effective from 24-25 Fy

Note: Previously the date was 30th April.

12. What is the time limit by which a taxpayer can go for a composition scheme?

For fresh registration…………At the time of application

For registered Taxpayers … .Before the beginning of the FY.

Ex. If a registered person wishes to opt for composition scheme for FY 25-26 then he should apply for the same by 31/03/2025.

13.When can a composition taxpayer come out of the scheme?

At any time during the Financial Year

14. What is the effective date of registration?

a. If Application Is Made Within 30 Days of Becoming Liable:

• The effective date of registration will be the date on which the person became liable for registration.

Example:

• Date of liability: 1st April 2025

• Application date: 15th April 2025 (within 30 days)

• Effective Date of Registration: 1st April 2025

b. If Application Is Not Made Within 30 Days of Becoming Liable:

• The effective date of registration will be the date on which the registration is granted.

Example:

• Date of liability: 1st April 2025

• Application date: 15th May 2025 (beyond 30 days)

• Registration granted: 31st May 2025

• Effective Date of Registration: 31st May 2025

15. Who are not eligible for composition scheme Section 10(2)

• He should not supply goods or services that are non taxable
• He should not supply inter-state
• He should not be a casual taxable person or a Non resident taxable person
• He should not Supply service through e-commerce operators who collect tax u/s 52.However supply of goods within the state through e-commerce platform is allowed.
• Supplier of service unless the service is within the limit specified
• He should not manufacture
  • Ice cream
  • Pan Masala
  • Tobacco
  • Fly ash bricks
  • Fly ash aggregates,
  • Fly ash,blocks , bricks of fossil meal
  • Or similar siliceous earths
  • Building bricks
  • Earthen or roofing tiles
  • Aerated water

Note. The traders dealing above are not prohibited. This prohibition is applicable only in case of manufacturers.

****

For further queries Kindly reach out to CA K Seeta Rajani on ksr.wca@gmail.com