There are high provisions under GST for returns, tax payments, and details to be submitted by registered persons which cannot be complied with by small suppliers and manufacturers.  A composition scheme under GST has been provided as an option for those small suppliers and manufacturers to pay amount (not tax), in lieu of tax payable in normal levy. This scheme provide for less number of returns, less number of compliance and less maintenance of books of accounts etc. A registered person can opt for this option (Composition Scheme) subject to certain conditions specified in the scheme.

Aggregate Turnover1. Eligible Persons for Composition Scheme under GST: Person must be a registered person, whose aggregate turnover in preceding financial year did not exceed seventy five lakh (75 lakhs) rupees. For special category states except Uttarakhand, this turnover limit has been reduced to fifty lakh (50 lakhs) rupees. If a registered person, having the same PAN, has more than one registration, whether in same state or in two different states as Head office and branch, then both will have to opt for composition scheme. A composition supplier is allowed to make purchases from outside state.

2. Non-eligibility for GST Composition Scheme: A person shall not be eligible to opt for this scheme if-

a) Engaged in supply of services other than supplies of food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption) i.e. Restaurant services;

b) Engaged in making any supply of goods which are not leviable to tax under this act;

c) Engaged in making any inter-state outward supplies of goods;

d) Engaged in making any supply of goods through an electronic commerce operator who is required to collect tax at source u/s 52; or

e) Manufacturer of notified goods u/s 10(2)(e) [CGST] i.e.-

♦ Ice Cream and other edible ice whether or not containing cocoa,

♦ Pan Masala, or

♦ Tobacco and manufactured tobacco substitutes.

3. Tax Rate Structure under GST Composition Schemes: Three rates of tax have been prescribed for composition scheme which are as given below- 

Sr. No. Category of registered person Rate of Tax

 (SGST+CGST)

1. Manufacturers, other than notified manufacturers 2%
2. Suppliers- Restaurant Services [Schedule II, Para 6 Clause (b)] 5%
3. Others 1%

Dos and Donts4. Restrictions and Conditions: The Person should comply with following conditions before exercising the option of composition scheme-

a) Not being a casual taxable person or a-non- resident taxable person;

b) Goods held in stock by him have not been purchased from an unregistered supplier and where purchased, he pays the tax u/s 9(4) i.e. under reverse charge mechanism; and

c) Not engaged in manufacturing of notified goods.

5. Timing for intimation of exercising option of GST Composition Scheme: A person, who wants to exercise option of this scheme, is required to intimate electronically through filing specified form in specified time limit. Person need not to file fresh intimation every year. Any intimation in respect of any place of business in any state or UT shall be deemed to be an intimation in respect of all other places of business registered on the same PAN.

Sr. No. Timing for exercising option of this scheme Time Limit Intimation Form
1 Migration Prior to appointed day, but not later than 30 days or further extended period. GST CMP-01
2 Opt for Composition in future Prior to the commencement of the financial year GST CMP-02
3 New Registration Date of application for new registration Part B of GST REG-01

 6. Effective Date for Composition Levy under GST: The option to pay thx under this scheme shall be effective from the date based upon the timing of exercising the option of this scheme.

Sr. No. Timing for exercising option of this scheme Effective Date
1 Migration Appointed day
2 Opt for Composition in future Beginning of Financial Year
3 New Registration Date on which the person becomes liable to registration where the application for registration submitted within 30 days, if not, then date of grant of registration.

7. Person migrating to GST – A person, who has been granted registration on a provisional basis is required to complied with the following conditions-

a) File intimation electronically for opting for composition scheme prior to appointed day not later than 30 days or any further extended period. [GST-CMP-01]

b) Furnish details of stock, including the inward supply of goods received from unregistered persons, held by him on the day preceding the date from which he opts to pay tax under composition scheme within 60 days from the date on which the option for composition levy is exercised or any further extended period. [GST-CMP-03]

c) Migrating person cannot opt for this scheme if, goods held in stock by him on the appointed day have been-

♦ Purchased in the course of inter-state trade or commerce;

♦ Imported from a place outside India;

♦ Received from his branch situated outside the state; or

♦ Received from his agent or principal outside the state.

8. Withdrawal from Composition scheme: This option shall remain valid so long as he satisfies all the conditions. The option shall lapse with effect from the day on which his aggregate turnover during a financial year exceeds specified limit or occurrence of event of ineligibility. After ineligibility, person shall file an intimation for withdrawal within 7 days. If registered person intends to withdraw from this scheme, then he has to file intimation before the date of such withdrawal. Person shall also issue tax invoices instead of Bill of Supply for every taxable supply made thereafter. If proper office has reason to believe that registered person was not eligible to opt for this scheme then he can also issue order of withdrawal after giving opportunity of being heard and such person will be liable to pay the differential amount of tax along with penalty.

9. Returns under Composition Scheme: Quarterly return [GSTR-4] is required to be filed by composition supplier till 18th of the month succeeding quarter. Composition supplier shall also be required to file annual return in Form GSTR-9A.

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37 responses to “9 things to know about Composition Scheme under GST”

  1. CHIRADIP DAS says:

    Hi, one of my purchasers comes from neighbouring state and buys goods from me and takes it with him at his own expense but makes payment by cheque of his state. am i breaching Composite scheme rules

  2. Varun Kumar says:

    Dear Madam,
    If someone’s Turnover around 15 Lakh per year, and other dealer told him to take registration immediately otherwise they stop supply.
    Have there any special Tax scheme in GST ?
    Please reply.

  3. deepak singh says:

    Madam
    Is there any provision in gst under composition scene where we can do small supply in other state.

  4. Sachin Tatti says:

    Madam,

    Can Composition dealer buy goods from Composition Seller.

    • SHILVI says:

      Yes,
      there is no such restrictions. Composition dealer is a registered person, not an unregistered person, therefore RCM liability has no relation with this.

  5. Sachin Tatti says:

    Hello Madam,

    Can Composition dealer purchase goods from Composition dealer..

  6. AnilkumaR says:

    Two registration under One pan

  7. Anilkumar41418@gmail.com says:

    If I have two shops under One pan in two name and bank seperatly then can I take composition scheme in gst in these two shops

    • SHILVI says:

      Yes, you can opt for composition and even you ought to opt composition for all two GSTIN/business if you want to opt for composition scheme.

  8. Ajay says:

    Q1. If last year annual turnover was 60 lakh. And having a stock of 20 lakh on 30th june can a person opt for composite scheme in gst.
    Q2.say a person A is having 2 different shops in a single state and he is doing business of same kind in both the shops but having different name (i.e. firm name) in both the shop. Will that person had to take 2 different gst no. In single state.(he cant opt for 2nd business place as these are 2 different firms with same prop. ,and same business but firm name is different and place is also different but ina single state.)

    • SHILVI says:

      1. Threshold limit of turnover is 75 lakh (except specified states), so you can opt for composition scheme if you want untill you crosses specified limit.
      2. two different registration under one PAN is only possible when you have two different business verticals. IF you have same business then you can run business under same GSTIN for both shops.

  9. Piyush Garg says:

    if a dealer is engaged in both manufacturing of goods as well as resale of goods, then how composition tax will be calculated?
    i.e. either (1% on resale turnover and 2% on manufacturing turnover)

    or 2% on total turnover

    • SHILVI says:

      Sir,
      In my view, rate of composition is leviable on the basis of category of registration. If you have applied for registration as a manufacturer, then rate of manufacturer would be leviable.

      • SHILVI says:

        Further, if you are registered as manufacturer and trader both then rate of composition levy would be 2% for manufacture and 1% for others.

  10. Piyush Garg says:

    thank you madam for such useful information.
    i have two queries:
    1) is the restriction on tobacco manufacturers is also applicable on tobacco sellers? i.e. can tobacco sellers can opt for composition scheme

    2) if a composition dealer sells both exempted and taxable goods, then will composition tax be paid on aggregate turnover or only turnover of taxable commodities.

    • SHILVI says:

      1. There is restriction related to opt for this scheme in case of tobacco on manufacturers and not on traders. Therefore, you can opt for this scheme.
      2. Composition levy is on aggregate turnover therefore it would be leviable on taxable supplies as well as exempted supply.

  11. Suresh Nambiar says:

    Madam,
    I’m a SSI manufacturer having a turnover of 24 lakhs in the financial year ended March 31. However, I have raw materials worth almost 50 lakhs in stock as on June 30. No finished goods and cenvat or Mvat credit in balance on June 30. Do I have to pay tax on the transfer of the stock under composition scheme ?

    • SHILVI says:

      Sir,
      for composition scheme, threshold limit is Rs 75 lakh and you already have raw material stock of Rs 50 lakh. How can it be possible for you to opt for composition scheme.

  12. Ravi Hotwani says:

    Composition rates are revised

    Manufacturer 1%
    other than manufacturer 0.50%

    Right?

  13. Ramesh goyal says:

    I am a retailer dealing in gift items.my purchase is interstate and out state both.i want to opt for co.position GST scheme.what kind of invoice I should issue to my customers.retail invoice or any other.i can’t charge tax.but I have to issue I voice

    • SHILVI says:

      You can opt for composition scheme within 30 day and issue bill of supply instead of tax invoices without charging any tax.

  14. Sameer sachdev says:

    Can a dealer opt for composition tax under gst if he has cst purchases for the year 2016-17

  15. bijay Kumar says:

    Hello Madam,
    Just read your article about the composition scheme. I have a couple of queries.

    1. It is written that if a Migrating person has stock purchased in the course of Inter State, than he cannot opt for Composition. Since, the Textile Persons are not Migrating (They will be taking a new Registrtion) Can they take the new license in Composition Scheme?

    2. Again on textile merchants, all the stock they have on the appointed day is purchased from Unregistered dealer. So, if they want to go for composition scheme, do they first have to pay tax on the basis of reverse charge on there stock and then they can opt for composition, or is there any specific expemtions to new registration made on the appointed date?

    3. For new registration under Composition Scheme it is necessary to declear stock held on 30/06/2017? if yes, in which FORMAT.

    Thanks

  16. v.mohan reddy says:

    still need ,
    looking for more information about services

    • SHILVI says:

      Thank you sir..
      As far as composition scheme is concerned, I covered all the things as per my knowledge.. For services point of view, lots of articles are available and will be available more.

  17. v.mohan reddy says:

    lot of information thanx

  18. Amul says:

    I am selling stationery items,gift items, garments , hosiery items, school uniforms under one roof and under same PAN, can I opt for composition scheme

  19. Arpit Khandelwal says:

    in case of book seller and stationery shop.- on Books 0 % Gst but on other things like pens copy etc gst is charge 12%. can we opt Compostion scheme under this case as u mention in her article that person Engaged in making any supply of goods which are not leviable to tax ( Books in my case) under this act;in not eleigible

    • SHILVI says:

      Yes, You can opt for composition scheme. these all goods are leviable for tax under this act whether be zero percent or 12 percent.

  20. j. akram says:

    hello mam .
    just a small doubt about composition scheme i am doing a buisness in tamil nadu . can i purchase the materials from andhra pradesh and kerala what is the turn over limit for composition scheme. but i sell the materials only in tamil nadu. can i adopt the composition scheme. now my turn over is just rs. 20 lakhs per financial year. please give a detailed reply to mail

    • SHILVI says:

      Yes, you can opt for composition scheme upto turnover of Rs75 lakh in a Financial year. There is no restriction in purchasing from outside state but cannot make outward interstate supply.

  21. Ashwani Agarwal says:

    Hello Madam,
    Just read your article about the composition scheme. It was very insightful. I have a couple of queries.

    1. It is written that if a Migrating person has stock purchased in the course of Inter State, than he cannot opt for Composition. Since, the Textile Persons are not Migrating (They will be taking a new Registrtion) Can they take the new license in Composition Scheme?

    2. Again on textile merchants, all the stock they have on the appointed day is purchased from Unregistered dealer. So, if they want to go for composition scheme, do they first have to pay tax on the basis of reverse charge on there stock and then they can opt for composition, or is there any specific expemtions to new registration made on the appointed date?

    3. If, any composition dealer purchases goods from unregistered dealers, he will have to pay reverse charge. In that will he have to issue tax invoice or not? If yes, than what other formalities does he have to fulfill apart from issuing TAX INVOICE?

    Thanks

  22. Jai Maurya says:

    Nice Article.

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