GST Composition scheme is an alternative taxing method introduced for small taxpayers with low turnover. The composition scheme has been structured with the aim to make tax compliances simpler and cost-effective for the small taxpayers. In this article we’ll try to describe the GST composition scheme limits.

Business with a turnover of less than Rs. 100 lakhs, (less than Rs. 75 Lakhs in the Special Category States), can opt to pay under the GST composition scheme. The aggregate turnover is based on all businesses registered with the same PIN number, and thus all businesses registered the same PAN number can be registered as composition dealers or can be registered under the normal provision of the GST law but not a combination of both. In simple words, a business having different segments cannot be selective for opting composition scheme for few segments. The composition scheme has to be taken for all the business segments collectively.

Persons who are not eligible for the Composition Scheme under GST

  • Supplier of exempt supplies
  • Supplier of services (except restaurant related services)
  • Producer of ice cream, pan masala, or tobacco
  • A Casual Taxable Person
  • A Non-resident Taxable Person
  • Businesses supplying goods through an e-commerce operator

Below are the specified conditions that must be satisfied in order to avail composition scheme:

  • No Input Tax Credit (ITC) can be claimed by a taxpayer opting for GST composition scheme
  • The composition taxable person can only deal in intra-state supply (supply within the state) i.e. no inter-state supply of goods
  • The taxable person cannot supply exempted goods
  • The taxpayer has to pay tax at regular rates for dealings under Reverse Charge Mechanism
  • If a taxpayer has various businesses segments (such as pharmacy, electronics, groceries, etc.) under the same PAN, the taxpayer should register all such business under the scheme collectively or opt out of the composition scheme
  • The taxpayer opted for GST composition scheme has to indicate the word ‘composition taxable person’ on every notice or signboard shown prominently at their place of business.
  • The words ‘composition taxable person’ has to be mention on each bill of supply supplied by the composition taxable person.

Rates under GST Composition Scheme

Composition Scheme – Goods and Service Tax Rates
Business Type CGST SGST Total
Traders (Goods) 0.5% 0.5% 1%
Manufacturer 0.5% 0.5% 1%
Supplier of food & drinks (restaurant business) 2.5% 2.5% 5%
Service Providers Supplier of services (Except supplier of food and non-alcoholic drinks) cannot opt composition scheme.

Under the composition scheme, the payment of GST has to be made out of pocket. In simple words, a taxpayer who opted for Composition Scheme cannot collect tax from its customer i.e. cannot charge GST in their Invoice.

Details of stock to be furnished:

The person seeking registration under composition levy needs to furnish the details of:

  • Stock held by him (whether purchased from registered or unregistered suppliers) on the day prior to the date from which he opts for composition scheme,
  • In the prescribed form, electronically on the common portal,
  • Within a time period of 90 days
  • From the date of opting composition levy or within such further period as may be extended by the Commissioner in this behalf.

 Advantages and Disadvantages of Composition Scheme under GST

Advantages of opting GST Composition Scheme:

  • Lesser compliance
  • Fixed tax liability
  • High liquidity as taxes are at a lower rate

However, there are certain disadvantages as well if a taxable person is opting for the composition scheme under GST.

Disadvantages of opting composition scheme under GST:

  • A composition taxable person is barred from making any inter-state supply of goods i.e. there is a territorial limitation on his business.
  • A composition taxable person cannot avail Input Tax Credit
  • The taxpayer registered under composition scheme cannot supply  goods through an e-commerce operator.

Check What are the GST Composition Rates?

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Company: Taxguru Consultancy / Taxguru Edu
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June 2021