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Composition Scheme under GST – Analysis, benefits & drawbacks

Turnover limit under GST Composition Scheme

North Eastern State and Himachal Pradesh : Rs. 75,00,000/-

In other States : Rs. 1,00,00,000/-

Turnover of all businesses registered with the same PAN should be taken into consideration to calculate turnover.

Who can’t opt for GST Composition Scheme

  • Taxpayer supplying exempt supplies.
  • Taxpayer having Interstate supplies.
  • Supplier of services other than restaurant related services.
  • Manufacturer of ice cream, pan masala, or tobacco.
  • Casual taxable person or a non-resident taxable person.
  • Businesses which supply goods through an e-commerce operator.

Conditions for availing Composition Scheme under GST

  • No Input Tax Credit can be claimed by a dealer opting for composition scheme.
  • The taxpayer cannot make any inter-state supply of goods.
  • The dealer cannot supply GST exempted goods.
  • Taxpayer has to pay tax at normal rates for transactions under 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.
  • Those supplying goods can provide services of upto Rs. 5 lakh.

How can a taxpayer opt for composition scheme under GST?

To opt for composition scheme a taxpayer has to file GST CMP-02. This can be done online by logging into the GST portal. This intimation should be given at the beginning of every Financial Year by a dealer wanting to opt for Composition Scheme.

How Should a Composition Dealer raise bill?

A composition dealer cannot issue tax invoice. This is because a composition dealer cannot charge tax from their customers. They need to pay tax out of their own pocket (Profit). 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.

GST rates for a composition dealer

Type of Business Tax payable
Manufacturer and Trader 1 % of their turnover
Restaurants not serving alcohol 5 % of their turnover

Returns required to be filled 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. Also, note that a dealer registered under composition scheme is not required to maintain detailed records.

Advantages of Composition Scheme under GST

  • Lesser compliance like lesser returns, maintaining books of record, issuance of invoices.
  • Limited tax liability.
  • High liquidity as taxes are at a lower rate.

Disadvantages of Composition Scheme under GST

  • A limited territory of business. The dealer is barred from carrying out inter-state transactions.
  • No Input Tax Credit available to composition dealers. Hence, Amount of GST will be paid out of pocket of businessman.
  • The taxpayer will not be eligible to supply exempt goods or goods through an e-commerce portal.

View Comments (10)

  • Dear Readers,

    Presently, turnover limit of composition scheme is Rs. 1 crore and Govt is planning to increase upto Rs. 2 crore after an amendment in law. This amendment will passed with retrospective effect once implemented. So, at present limit is Rs. 1 crore. Pl read article with this minor correction

  • I AM PROPIERTOR OF COMPUTER/PRINTER SELLING SHOP. MY TURNOVER IS ABOUT 30 LACS. I AM REGISTERED AS UNDER COMPOSITE SCHEME.MY QUESTION IS WHETHER CAN I DO REPAIRING OF COMPUTERS OR HIRING OF PRINTER IN LIMIT OF 5 LACS.PLEASE GUIDE ME.

    • Sureshbhai, Composite dealer can provide services upto Rs. 5 Lakh. So, in your case, you can do upto Rs. 5 lakhs.

      All service sector are kept away from the composition scheme except Hotels and Restaurants.

  • If RS.Twenty lakhs is exempted limit under the composition scheme. The tax is on excess afterTwenty lakhs or it exceed twenty lakhs then tax is calculated from first Rupee. For example if the turnover is RS twenty five lakhs .what is tax liability.

  • Sir, A retaile propriter ship business man with a turn over 30 laks pa., along with commercial rental income of 5 laks
    pa. is he eligibel to opt composite scheme from gst.

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