Under the GST laws, a composition scheme was introduced as an alternative method of levying tax framed for small taxpayers. Businesses with an aggregate turnover of up to 100 lakhs can opt for composition scheme by paying tax at a predetermined rate which is fixed on their gross turnover. However, a person opting for composition scheme cannot avail the benefit of input tax credit.

Currently, manufacturers, traders and restaurants (supplying non-alcohol drinks) can opt for the GST composition scheme. The rate of tax rate prescribed under the composition scheme is 1% (0.5% CGST and 0.5% SGST) for manufacturers and traders, and 5% (2.5% CGST and 2.5% SGST) for restaurants. Before October 2017, the prescribed rate of tax under this composition scheme for manufacturers was 2% (1% CGST and 1% SGST), and for traders and restaurants, the rate was same 1% (0.5% CGST and 0.5% SGST).

The following are the conditions that must be fulfilled in order to opt for GST composition scheme:

  • No Input Tax Credit can be availed by a person opting for GST composition scheme
  • The person opted for composition scheme cannot make any inter-state supply of goods.
  • The composition taxable person cannot make supply GST exempted goods
  • The person opted for composition scheme has to pay tax at regular rates for transactions under Reverse Charge Mechanism
  • Where a person is having different business segments (such as electronic accessories, automobile, groceries, textile, etc.) under the same PAN, he is required to register all such businesses under the composition scheme collectively. In other words, he cannot choose a composition scheme for selected business segments.
  • The words ‘composition taxable person’ need to be mentioned on every notice or signboard shown at the principal place of business or additional place of business.
  • The words ‘composition taxable person has to be mentioned on the top of the bill of supply issued.

How to opt GST Composition Scheme?

Intimation of opting for composition levy

Every person opting for registration under GST law for the first time is required to give the intimation for the composition levy. Where a person applies for the GST registration for the first time has an option to pay tax under composition scheme in Part ‘B’ of the registration FORM GST REG-01.  The same shall be considered as an intimation given by the applicant to pay tax under Composition scheme. However, such intimation shall be taken care of only after the granting the registration to the applicant. The option to pay tax under composition scheme shall be effective from the date from which registration becomes effective.

Where a person is already registered under GST law is also required to give an Intimation to pay tax under the composition scheme. A registered person opting for composition scheme is required to file intimation electronically in the prescribed form on the Common Portal. However, such intimation needs to be furnished prior to the commencement of the Financial Year for which said the option is exercised.

The registered person is also required to furnish the statement in the prescribed form as per the provisions contained under CGST Rules, 2017 within 60 (SIXTY) days from the commencement of the relevant Financial Year.  Any intimation given in respect of any place of business in a State/Union Territory shall be treated as an intimation in respect of all other places of business registered on the same PAN.

Details of stock to be furnished:

Any person who files such intimation is also required 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.

The option to pay tax under the composition scheme shall be effective from the beginning of the Financial Year.

Click here to Check who are eligible for composition scheme?

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June 2021