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.

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

It Includes:
Value of    all outward supplies

–Taxable supplies

–Exempt supplies

–Exports

–Inter-State supplies

-CGST

–SGST

–UTGST

–IGST

–Cess

–Value of inward supplies on which tax is payable under reverse charge

of persons having the same PAN be computed on all India basis.

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:

The person opting for composition scheme is neither a casual taxable person nor a non-resident taxable person.
The goods held in stock by person opting composition scheme have not been purchased from an unregistered supplier and where goods are purchased from an unregistered supplier, the tax under reverse charge under section 9(4) has been paid.
The person availing composition scheme shall pay tax under section 9(3)/9(4) (reverse charge) on the inward supply of goods or services or both.
The words “composition taxable person, not eligible to collect tax on supplies” has  to be mentioned  on the bill of supply issued by composition taxable person; and
Such person shall mention the words “composition taxable person” on each notice or signboard at a prominent place at the place of business.
Such a person was not engaged in the manufacture of goods as notified under section 10(2)(e), during the preceding FY.

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?

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2 responses to “Who cannot opt Composition Scheme under GST”

  1. MAHENDRA CHUGWANI says:

    SIR, WHAT ABOUT SERVICE PROVISION OF UPTO RS. 5 LAKHS IN COMPOSITION WHICH WAS OUTCOME OF 23RD MEETING OF GST COUNCIL.
    PLEASE CLARIFY.

  2. krishna kumar says:

    PLEASE CLARIFY THAT THE LIMIT
    IS INCREASED TO 150 LAKH IN THE 28TH GST COUNCIL
    PLEASE CHECK UP
    THANKS
    KRISHNAKUMAR

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