Who cannot opt Composition Scheme under GST

GST composition scheme was introduced under the respective State Tax Laws to ensure greater compliance without the need of maintaining records. This scheme was missing under the Service Tax laws.

Conditions for opting composition scheme include:

• The person opting for composition scheme should be a registered person under GST
• Goods kept in stock should not have been bought from outside the state
• Goods kept in stock should not have been bought from an unregistered dealer; if so, the taxpayer shall pay tax on the goods
• Aggregate turnover in the previous financial year must have been less than 100 lakhs.

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Composition scheme under GST

While computing the threshold limit of 100 lakh, inclusions in  and exclusions from ‘aggregate turnover’ are as follows:

The following are the person who cannot opt for GST composition scheme:

• Service providers (other than the person engaged in the supply of food and drinks i.e. restaurant services)
• Producer of pan masala, or tobacco, ice cream
• A non-resident taxable person, Casual taxable person
• The person supplying goods through an e-commerce operator
• Taxpayer supplying exempt supplies

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.

A person opting for composition levy has to comply with the following conditions:

A taxpayer under the GST composition scheme cannot enter into credit chain

A person opting for the GST composition scheme is ineligible to avail any input tax credit. That means the composition taxpayer person cannot enter into the credit chain, as he cannot raise tax invoice. The composition taxable person can issue bill of supply for the supplies made by him.

Check who are eligible for composition scheme?