Introduction to composition scheme:
A scheme named composition scheme/Composition levy is introduced in the GST law in addition to normal levy. The reason for introducing this scheme is to reduce the tax burden of small taxpayers whose aggregate turnover is less than the prescribed limits.
What is a composition scheme:
In a composition scheme the taxpayer will pay tax at reduced rates than the normal rates. The composition dealer(the person who opted for composition scheme) is not eligible to collect taxes from their recipient of supply. The Supply determination will be as same for normal levy, the only change here is the reduced tax rate, quarterly payment of the taxes and annual returns. The supplier needs to mention Composition dealer in all of their Bill of Supply.
The provisions for composition dealer is given in section 10 of CGST Act
Who can be a composition dealer :
The following persons are not eligible for opting this scheme
1. The person supplying goods/service through an E-commerce Operator who is required to collect tax under section 52.
2. Casual taxable person and Non-resident taxable person
3. Persons manufacturing goods notified under section 10(2)(e) section 10(2)(e) mentions the notified goods
- manufacturer of tobacco and tobacco substitutes
- manufacturer of pan masala
- manufacturer of aerated waters
- manufacturer of edible ice and ice cream whether or not containing cocoa.
4. Persons engaged in making any supply of goods which are not eligible to tax under this act
5. persons making any interstate outward supplies.
*note: A composition dealer can receive interstate inward supplies.
The persons (other than the persons mentioned above) whose aggregate turnover in the preceding year should be less than 1.5cr or 75 lakhs(for special category states) as the case may be is eligible for composition scheme.
Special category states
- Arunachal Pradesh
- Manipur
- Mizoram
- Meghalaya
- Tripura
- Nagaland
- Sikkim
- Uttarakhand
So the persons who are opting for composition scheme should satisfy the following conditions:
1. He/ She should not be a person disqualified to opt for this scheme as mentioned above,
2. His/her turnover in the preceding financial year (to the year in which he is going to opt) should be less than 1.5 r or 75 lakhs.
3. And should be the supplier of goods only. However a person exclusively engaged in the supply of restaurant services can also opt for this scheme.
4. Under section 10(2A) and under second proviso to section 10(1), a exclusive supplier of service and a marginal supply of other services along with supply of goods/restaurant services is also eligible for this scheme.
The value of marginal supply of service should not exceed the higher of the following
i) 10% of the aggregate turnover of the state/union territory in the preceding financial year
or
ii) 5 lakhs
Aggregate turnover
Aggregate turnover includes
- all taxable supplies(excluding the value of inward supplies on which tax is payable by a person on reverse charge)
- zero rated supplies
- exempted supplies(includes non-taxable, nil rated supply)
- Interstate supplies between distinct persons having same PAN
- supply on behalf of a principal excludes
- Central tax(CGST)
- state tax(SGST)
- union territory tax and
- Integrated tax(IGST)
- GST compensation cess
Rates and payment of taxes:
In composition levy the dealer has to pay the tax on the turnover made on every quarter commencing from April, and file the quarterly return on 18th of the month succeeding the quarter in form GST-CMP-08
| Persons Opted for Composition Scheme | Threshold limit | Tax rate | Turnover in the quarter for which the tax is payable |
| 1. Persons engaged in exclusive supply of goods | Normal states- 1.5Cr SPL category states – 75Lakhs | Manufacturer-1% (0.5%CGST & 0.5%SGST) | Taxable+ Exempted Goods |
| Trader-1% (0.5%CGST 0.5%SGST) | Taxable goods & services | ||
| 2. Persons engaged in restaurant services | Normal states-1.5Cr SPL category states-1Cr | 5% GST (2.5% CGST, 2.5%SGST) |
Taxable + Exempted supply |
| 3. Persons engaged in exclusive supply of services | All states-50Lakhs | 6% GST (3% SGST,3% CGST | Taxable + Exempted supplies |
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