The composition scheme is a very simple, hassle free compliance scheme for small tax payers. Mainly, the scheme is for small business as to provide them relief so that they need not be burdened with the compliance provision of law. Composition scheme is not mandatory scheme, as it is an optional scheme. Person eligible for Composition scheme has a choice to pay a fix percentage of turnover or comply detailed provision of law. The purpose of introduction of such scheme is to make small taxpayers burden free with additional compliances as in case of normal taxpayers.
Eligibility criteria for GST Composition scheme
Section 10 states that Notwithstanding anything to the contrary contained in this act a registered person whose aggregate turnover in the preceding financial year did not exceed 1.5 Crore, will be eligible for payment of tax under the Composition Scheme.[i] However in some special category states (Arunachal Pradesh, Uttarakhand, Manipur, Meghalaya, Mizoram, Nagaland, Tripura and Sikkim) the limit is reduced to 75 Lakh
The Registered person shall be eligible to opt for composition scheme provided:
1. Either he is not at all engaged in supply of services other than restaurant service and
2. In case he supplies service other than restaurant service, value of such service does not exceed 10% of the turnover in a state/UT in the preceeding Financial year or Rs. 5 Lakh whichever is higher.
Here Aggregate turnover means,
Aggregate turnover is the sum of value of all outward supplies falling under categories of Taxable supply, exempt supplies, Export of goods or service or both and inter-state supply but excludes the value of inward supply on which tax is payable by person on reverse charge basis and tax including cess payable under GST law.[ii]
|Sr No.||Categories of registered person||Central Rate||State/UT Rate||Total
|Basis of Calculation|
|1.||Manufacturer of goods||0.5%||0.5%||1%||Turnover in state|
|2.||Restaurant Service||2.5%||2.5%||5%||Turnover in state|
|3.||Other supplies||0.5%||0.5%||1%||Turnover of taxable supplies of goods and services in state|
Persons not eligible to opt for Composition Scheme
1. Tax payer making inter-state supplies of good
2. Tax payer making supplies of goods through e-commerce operator
3. A casual taxable person or non-resident taxable person
4. Manufacturer of ice cream, Pan masala, tobacoo and aerated water (recently added).
Therefore no specific reasons have been provided to exclude manufacturer of ice cream, Pan masala, tobacoo and aerated water from the composition scheme but according to precedents they are endangerment to life. The reason for exclusion of ice cream could be that they are considered high risky from the health point of view. The reason for excluding pan masala could be that it includes special material capable of bearing effects of chemicals and for tobacco the reason can be tobacco sector is considered to be evasion prone.
Intimation of opting for Composition Scheme
1. Intimation by the person applying for registration
A person who is not registered under existing law but applies for fresh registration under Rule 8 of the CGST Rules, 2017 may opt for the scheme by providing necessary information under part B of FORM GST REG-01.
The intimation shall be considered only after grant of registration to the applicant and his option to pay tax under composition scheme shall be effective from the date from which registration is effective.
2. Intimation by a registered person
A Registered person who want to pay tax under composition scheme shall electronically file an intimation in Form GST CMP-02 prior to commencement of financial year for which the option to pay tax under composition levy is exercised and also has to a furnish a statement in FORM GST ITC-03 in accordance with the sub rule (4) of Rule 44 of CGST Rules, 2017, within 90 days from the commencement of the relevant financial year.
The option to pay tax under composition levy shall be effective from the beginning of the FY.
Bill of supply
Person registered under will issue bill of supply instead of tax invoice and he has to mention at the top of every bill of supply issued that “composition taxable person, not eligible to collect tax on supplies”
Withdrawal from composition scheme
Registered person who voluntarily want to withdraw from the composition scheme need to file FORM GST CMP-4, before the date of withdrawal.
Registered person who ceases to satisfy any provision of scheme has to file FORM GST CMP-4 for withdrawal within 7 days of such cessation.
After withdrawal in both cases registered person has to pay tax as normal tax payer and have to issue proper tax invoice for every supply.
Persons not eligible for composition scheme, but eligible for Notification No. 2/2019 CT(R)
A registered person whose aggregate turnover in the preceding financial year does not exceed 50 lakh and:
1. Who is exclusively engaged in supplying services other than restaurant services, or
2. Who is engaged in supply of service (other than restaurant service) along with supply of goods and/or restaurant services of value exceeding 5 lakh in current Financial Year.
Person registered under this scheme have to pay tax 6% (3%+3%) on first supply of goods and/or service upto an aggregate turnover of 50 Lakh made on/after 1st April in any Financial Year.[iii]
To conclude it is quite clear that Composition scheme is beneficial for small businesses, in simple language we can say it is beneficial for those who directly deal with customers. Person opted under this scheme cannot expand its business because of the condition put forth. There might me some defects in the scheme as every scheme have, but proper monitoring can minimize those drawbacks. The scheme is designed to benefit small tax payers to get rid of complex GST framework and compliances. Tax payer opting for scheme have to pay tax as per composition scheme.
[i] The central goods and service tax act, 2017 No.12 of 2017
[ii] The central goods and service tax act, 2017 No.12 of 2017
[iii] Notification No. 2/2019-Central Tax (Rate)