Composition scheme under the GST law is for small businesses where they can opt to pay a fixed percentage of turnover as tax in lieu of standard rate of tax and be relieved from the detailed compliance of the provisions of law. Section 10 of CGST Act deals with composition levy.
Section 10 is an overriding section which overrides contrary provisions of Acts subject to provisions of sub section (3) and (4) of section 9, which means a composition dealer is also required to pay tax under reverse charge.
Who can opt for composition scheme:
A registered person, whose aggregate turnover in the preceding financial year did not exceed Rs.75 lakhs (limit increased from 50 lakh to 75 lakh vide Notification No. 8/2017-Central Tax) may opt to pay a fixed percentage of turnover as tax in lieu of lieu of standard rate of tax.
Provided that if a person is registered in below mentioned states then the aggregate turnover in the preceding financial year shall not exceed Rs.50 lakhs:
1. Arunachal Pradesh,
9. Himachal Pradesh
Tax rates of Composition Levy
Under composition scheme registered persons are classified under three categories, a registered person needs to pay tax on the turnover in State or U.T. at a rate not more than 1% for manufacturer, 2.5% for restaurant sector and 0.5% for other suppliers.
|Sr. No.||Category of registered person||Rate of CGST||Rate of SGST||Total rate of Tax|
|2||Suppliers of food or other article for human consumption or any drink (other than alcoholic liquor for Human consumption). For e.g. Restaurants or Hotels||2.5%||2.5%||5%|
|3||Other Suppliers (Traders)||0.5%||0.5%||1%|
Registered person who can’t opt for Composition Scheme:
Following taxable person are not permitted to opt for the scheme if they are:
Conditions and restrictions for composition levy:
The person exercising the option to pay tax under section 10 shall comply with the following conditions:
1. he is neither a casual taxable person nor a non-resident taxable person;
2. In case of person registered under earlier law and migrated under GST, the goods held in stock by him on the appointed day (i.e. 1st Day of July, 2017) have not been purchased in the course of inter-State trade or commerce or imported from a place outside India or received from his branch situated outside the State or from his agent or principal outside the State; [For e.g. a person registered under HVAT migrated under GST have stock of Rs. 5,00,000 as on 30/06/2017 and out of this stock goods worth Rs. 50,000 were of purchases made from Delhi, then that person is not eligible to opt Composition scheme under GST Act]
3. he shall pay tax under sub-section (3) or sub-section (4) of section 9 on inward supply of goods or services or both;
4. he shall issue bill of supply instead of Tax Invoice and he shall mention the words “composition taxable person, not eligible to collect tax on supplies” at the top of the bill of supply issued by him;
5. he shall mention the words “composition taxable person” on every notice or signboard displayed at his principal place of business/ every additional place or places of business
6. All the registered persons having same PAN shall have to opt for composition scheme
No Tax, No Credit
A person registered under composition scheme is neither allowed to take Input tax credit on inward supplies of goods and/or services nor he is allowed to collect tax from recipients on outward supplies, he has to bear burden of tax himself and must be paid out of his own pocket.
If proper officer is of the opinion that a taxable person not being eligible for the scheme have opted for the scheme, he shall be liable to pay differential taxes (tax at standard rate less tax at composition rate) on his total turnover along with penalty and provisions of demand and recovery will apply to him.
GST Returns for Composition dealer:
Reasons why to opt for composition Scheme:
Demerits to opt composition Scheme: