With every emerging tax regime there comes compliances with statutory provisions that needs to be adhered in a efficient and timely manner. With the introduction of GST in India there comes compliances which could have been a challenge to small businesses. However to protect the interest of small businesses befitting provisions exists in GST by the name Composition Scheme. In the same tune as existed in the previous laws. Several State Governments had provisions for payment of a Composition levy of VAT for Specified small businesses which made compliance of tax laws easier without having to maintain copious records, registers and returns.

Section 10 of the Central Goods and Services tax Act 2017 and Composition Rules contains the provision of Composition Scheme. In this article take you through the provisions of composition Scheme.

Prior Conditions to opt for Composition Scheme

Particulars Remarks
Limit for Aggregate Turnover  in previous Financial Year Ø  It should be Less than Rs 75 Lakh in preceding year (Rs. 50  lakhs in special category states*)

Ø  Aggregate Turnover Includes Taxable supply, Exempt Supply, Non Taxable supplies and Export turnover.

Limit for Aggregate Turnover  in current Financial Year Ø  The scheme is available for Aggregate Turnover of all the GSTINs Issued on a single PAN being less than equal to 75 lakh
When to Opt For Registered Assessee – At the Beginning of Financial Year

For Newly Registered Assessee – At the time of applying for  registration

For migrated Assessee and new registration who did not opt the scheme at the time of registration –  up to 30th September 2017

Who Can Opt Ø  Manufacturer except Manufacturer of certain Specified Goods.

Ø  Trader of Goods

Ø  Restaurants Service Provider

Service Provider other than restaurants cannot opt for composition Scheme

Applicable for all GSTINs Composition Scheme has to be opted for all the GSTINs, issued on a single PAN
Who cannot Opt Service Provider other than restaurants

Manufacturer of specified goods. i.e Ice cream, Pan Masala, Tobacco and Substitute of Tobacco

Limitations on Dealer opting for Composition Scheme

Particulars Remarks
Cannot make inter-state supply Whereas Composition dealer can purchase from inter state
Cannot sell through E-commerce operator It is specifically stated in law
Restaurants Cannot serving liquor Composition scheme is not applicable to person supplying goods or services on which GST is not applicable. Liquor is not subject to GST.
Composition opted  for one  GSTIN shall e applicable on all GSTINs A person who has opted for composition scheme for 1 GSTIN has to mandatorily opt for all GSTIN on same PAN in same/other state.
No Input tax Credit available Input Tax Credit on purchase of Input goods or services shall not be available for dealer opting composition scheme
Cannot collect Tax A person opting for composition scheme cannot charge GST on its Invoice.
Payment of Tax on Exempted Goods also A composition dealer also selling exempted goods has to even pay tax under composition scheme on such exempted goods also.
Bill of Supply It is mandatory for composition dealer to mention “composition taxable person, not eligible to collect tax on supplies” at the top of the bill of supply issued by him
Board on display It is mandatory to mention the words “composition taxable person” on every notice or signboard displayed at a prominent place at his principal place of business and at every additional place or places of business.
Ineligibility on one GSTIN will apply to all If one of the GSTIN becomes ineligible of being working in the scheme all the other GSTINs issued on same PAN will ne ineligible to work

 Procedural Aspect

Particulars Remarks
New Assessee- To opt scheme At the time of registration he has to select registration as a composition Dealer.
Existing Registration-To Opt Scheme CMP-02 before the commencement of Financial year

ITC-03* within 60 days of commencement of financial year.

Return Quarterly return in GSTR-4
Exit from Scheme The dealer shall file a form CMP-04 within 7 days from when he ceases to be liable to work in the scheme or voluntarily applies for the exit from the composition scheme.

 *Form ITC-03 is to be filed for reversal of credit taken on stock held at the beginning of the year for which composition scheme is opt and if credits are insufficient it has to be paid in Cash. 

Applicability of Reverse charge

Reverse Charge would be applicable on composition dealer as it applies to normal dealer and there is no relaxation in this provision.  So therefore the tax has to be paid by composition dealer if any Inward supply of goods /services the tax on which is notified to be paid by recipient u/s 9(3) or on inward supplies from unregistered person as per section 9(4) shall be paid by the composition dealer over and above the tax which he is liable to pay on turnover and the credit of this tax paid shall also not be available to the composition dealer.

So to conclude at the end It can be said that the Composition scheme simple and brings the ease of doing business with less complications in provision of law and few compliances to the small business as dealer opting composition scheme are required only to file 1 return quarterly and no credit is available to the him

Restriction of operation through E-commerce operators and inter state transactions by a composition dealer would be regressive to the growth of MSME who wish to expand business via technology but is unable to cope up with the main stream compliances during the expansion phase.

(Author CA Utsav Dogra can be reached at [email protected])

Author Bio

Qualification: CA in Practice
Company: SU & CO, Chartered Accountants
Location: Delhi, New Delhi, IN
Member Since: 12 Sep 2017 | Total Posts: 3
Rendering services to foreign companies having or willing to establish subsidiaries/branch/ liaison office in India right form Pre incorporation market entry study & strategy, seeking approvals from different authorities in India to incorporation services, accounting and compliance of Tax author View Full Profile

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  1. rubita says:

    nice article,
    I am pharma supply agent startup in Bangalore (10L Turnover). I received IGST 18% tax invoice from normal taxpayer (Manufacturer seller in Punjab) . Should I go for Normal or Composition Tax payer? if I opt for Composition scheme , will I still receive 18% IGST invoice from seller?

  2. Anoop bhatia says:

    I am exiting businessman having small turnover of 45 lacks p/yr. Could not migrate for composition up to16 August due to tech.problem can I now apply for it if yes then what about the tax for three months I.e from July to 30 Sept.

  3. Sanjay Sharma says:

    very good Article .
    thanks for details

    also advise whether companies assigned by builders can charges GST on maintenance of flats in society when monthly bill lesser than INR-5000/-

  4. Abhishek says:

    Dear Sir,
    Do we need to reverse the credit availed on stock in hand on the appointed day if i opt in for composition Scheme being and existing dealer

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