As per Composition levy under Goods and Services Tax a registered person, whose aggregate turnover in the preceding financial year did not exceed Rs. 1 crore* may opt to pay, in lieu of the tax payable by him, an amount calculated at such rate as may be prescribed, but not exceeding,

(a) one per cent. of the turnover in State or turnover in Union territory in case of a manufacturer,

(b) two and a half per cent. of the turnover in State or turnover in Union territory in case of persons engaged in making supplies referred to in clause (b) of paragraph 6 of Schedule II, and

(c) half per cent. of the turnover in State or turnover in Union territory in case of other suppliers,

subject to such conditions and restrictions as may be prescribed:

*earlier the limit was Rs. 50 lakhs which was increased to Rs. 1 crore and the threshold limit for opting into composition scheme has been now Proposed to increase to to Rs. 1.5 crores in 28th GST Council Meeting.

It means that the registered person meeting the criteria of specified turnover as mentioned in the section has an option to pay tax as per his turnover on a certain % rate instead of the normal GST slabs. That is the reason it is called a “composition levy” under Goods and Services Tax.

Tax rate applicable to a dealer opting for Composition Scheme

Manufacturers and Traders 0.5% 0.5% 1%
Restaurants not serving Alcohol 2.5% 2.5% 5%

 Calculation of Tax under Composition Scheme

Tax on supplies (net of advance and goods returned) a
Add b
Tax on Business to Business transactions where reverse charge is applicable c
Tax on Business to Business transactions  from unregistered suppliers d
Tax on import of services e
Total GST payable by a dealer under Goods and Services Tax (a+b+c+d+e)

 Composition Dealer

The person who has opted for Composition levy under GST Act is called the Composition Dealer. A dealer who has opted for Composition scheme under GST Act has to take care of a certain provisions which are required to be complied with in case the assesse wants to enjoy the benefits of the scheme-

1. A Composition Dealer has to apply for registration under the Composition Scheme in Form GST CMP 01 if he is carrying a provisional registration, in form REG 01 if there is a fresh registration under GST, and in form GST CMP 02 if already registered assesse wants to shift to Composition Scheme.

2. A Composition Dealer availing the Composition Scheme cannot be casual taxable person and non resident taxable persons.

3. If the stock held by the dealer includes the goods purchased from the unregistered person, there can be two options with the dealer as explained below-

Purchases from the unregistered dealer are part of stock held in trade either pay tax on such purchases or do not hold such goods Inward supply of goods/ services or both tax has to be paid by the dealer

4. Display related conditions(Mandatory in nature) for the Composition Dealer-

a. Bills of Supply of the dealer opting for Composition levy

“Composition taxable person not eligible to collect tax on supplies”

b. Notices and Signboards at prominent places including his principal place of business and every additional place of business

Composition Taxable Person

Basic Points to understand the Composition Scheme

> Turnover of all businesses with same PAN has to be added up to calculate turnover for the purpose of composition scheme

> Only manufacturers of goods , dealers, and restaurants (not serving alcohol) can opt for composition scheme

> as per notification dated 01/01/2018 , turnover in case of traders has been defined as “Turnover of Taxable Supplies of Goods”

> Service Providers are not eligible for Composition Scheme except those who provide 10 percent services from their annual turnover

> Rates under composition scheme are applicable only to sales of a composition dealer and not for paying tax under Reverse Charge, as explained below.

> A dealer opting for Composition Scheme cannot avail Input tax Credit against purchases made under Goods and Services Tax

> The dealer under Composition Scheme has to issue Bill of Supply and cannot issue tax invoice

> A Composition dealer cannot collect composition tax from buyers.

> An annual declaration has to be given by the dealers who wish to opt for composition scheme for a particular Financial Year and that too at the beginning of the year.

Composition Scheme and Reverse Charge Mechanism

A dealer who has opted for composition scheme under Goods and Services Tax has to pay tax under Reverse Charge Mechanism wherever applicable. It is important to understand that the rate under composition scheme should not be used for reverse charge purposes. The rate for paying tax under reverse charge under the composition scheme is the rate at which GST has to be paid.

Author Bio

Qualification: CA in Job / Business
Company: M/s SML Isuzu Ltd
Location: Chandigarh, Chandigarh, IN
Member Since: 10 May 2017 | Total Posts: 43
CA Rubneet Anand B.Com, M.Com(Finance& Taxation), MBA(Finance & International Business- IMT Ghaziabad) [email protected] Deputy Manager (Internal Audit & Indirect Taxation)-M/s SML Isuzu Ltd Facebook Page- Corporate Prism-Consultation in Accounting & Corporate Managemen View Full Profile

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June 2021