Article explains What is Composition Scheme under GST, Who can opt for the Composition Scheme under GST, Who cannot opt for the Composition Scheme under GST, Applicable tax rates under Composition Scheme under GST, Which Returns to be filed by dealer opting Composition Scheme and Miscellaneous Provisions related to GST.

1. What is Composition Scheme under GST?

Composition scheme is a different way of payment of tax. It is introduced for small taxpayers who can’t comply with the heavy compliances of regular scheme like booking of ITC, Heavy tax rates, Multiple returns etc.

In composition scheme, the registered person never book ITC on its inward supply and not collects GST on its outward supplies from its customers. He is required to pay the tax to government out of his own pocket at the lower rates as mention below in Point no 4.

Now here arise some questions like who can and who can’t opt for this scheme? What are the compliances under this scheme?

So, Let’s understand the composition scheme (Sec 10 of CGST Act, 2017) in two parts:-

[Earlier composition scheme was introduced only for supplier of Goods called “Goods focused” and later on it is introduced for supplier of Service also called “Service focused”.]

Sec 10(1) – Goods Focused Sec 10(2A) – Service Focused
2. Who can opt for the Composition Scheme under GST?
  • A person having turnover upto 75 Lakh/150 Lakh in Previous Financial Year.
  • Who deals in goods as main business and can provide service upto 10% of total turnover or 5 Lakhs, whichever is higher.
  • Restaurant service.
  • A person having turnover upto 50 Lakh in Previous Financial Year.
  • Who deals in service (other than restaurant).

 

Conclusion of Point 2: –

Goods Focused Service Focused
  • Exclusively goods dealer
  • Exclusively service dealer
  • Goods + Limited supply of service (10% or 5 Lakh, Higher)
  • Goods + supply of service exceeds the limit of 10(1)
  • Restaurant

 

3. Who can not opt for the Composition Scheme under GST?
• Person making inter state supply of goods.

• Casual taxable person or Non resident taxable person.

• Person making supply through e- commerce operator.

• Supplier of non taxable goods.

• Manufacturer of specified goods which are Tobacco, Ice cream, pan masala, Aerated water.

• Person making supply of service (other than restaurant).

• A person whose supply of service exceeds the limits of 10% or 5 Lakh, whichever is higher.

• Person making inter state supply of goods or service.

• Casual taxable person or Non resident taxable person.

• Person making supply through e- commerce operator.

• Supplier of non taxable goods.

• Manufacturer of specified goods which are Tobacco, Ice cream, pan masala, Aerated water.

 

4. Applicable tax rates under Composition Scheme under GST
Manufacturer – 1% of the turnover in State or UT

Restaurant – 5% of the turnover in State or UT

Others (Trader, goods + limited service provider) – 1% of the taxable turnover in State or UT

Service Providers – 6% of the turnover

5. Which Returns to file?

Form Frequency Due date
CMP-08 Quarterly 18th of next month
GSTR-4 Annual statement 30th April of next FY
GSTR-9A Annual 31st Dec of next FY

6. Miscellaneous Provisions [Must Read]: –

  • A composition dealer will issue “Bill of Supply” instead of “invoice” to its customers.
  • He can not book ITC and can not charge GST from its customers.
  • He will mention on Bill of supply issued by him that “Composition taxable person, not eligible to collect tax on supplies”.
  • Composition dealer will make payment of taxes quarterly while filing Form CMP-08.
  • This scheme is applied on PAN basis i.e. Either all the registrations taken on a PAN will opt this scheme or all will opt out from this scheme. It is not possible to take composition scheme in one registration and regular scheme in another registration.
  • Service provided by way of providing deposits, loans or advances shall be ignored.
  • When a person opts for composition scheme then the scheme shall lapse from the day on which his aggregate turnover in current FY exceeds the limit of 50Lakh/75 Lakh/150 Lakh.
  • Aggregate turnover means ALL outward supplies i.e. Taxable, Exempted etc.
  • Limit of 75 Lakhs shall apply in these 8 states/UTs – Manipur, Mizoram, Nagaland, Tripura, Arunachal Pradesh, Uttarakhand, Meghalaya, Sikkim.

Author Bio

Qualification: Student - CA/CS/CMA
Company: N/A
Location: Bhiwani, Haryana, India
Member Since: 13 Mar 2021 | Total Posts: 1

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11 Comments

  1. nagshankar2002 says:

    The article is a good compilation. The GST evasion in this scheme, especially in the Restaurant sector is very high. Self-service restaurants show GST in the Bill but the day to day total collections are not accounted/reflected fully or shown less to avoid GST. In Bangalore and I think in most of the Towns/Cities it is accounted less or manipulated by the Auditors to save GST to the owners of the Restaurants. If Govt.gets 50% of the sales then it should feel lucky!!! The Govt.should make the enforcement/Preventive Checks more to curb such evasion.
    Retd.Asst.Commr, CGST, Bangalore

  2. sudheer shenoy s says:

    Hai, A hospital having beds and medicine sales, in patients bed room rent service Rs. 30 lakh and mediicine sale of Rs. 75 lakh , can this hospital go composition for medicince sale, since first service exempted wholly.

    1. Mamta Jangra says:

      The hospital is providing service as well as goods and the amount of service exceeds the limit of 10%[(30Lakh+75Lakh)*10%]. hence hospital can’t go with goods focused scheme. Now move to service focused scheme, here the limit of aggregate turnover is 50Lakh and the hospital crosses this limit.
      Hence the hospital can’t opt for composition scheme.

  3. m g arora says:

    good article
    but a query
    “Can books(which are ‘exempted goods/non taxable ” under GST” ) be sold under composition scheme by a retailer ?
    The doubt arises as Aggregate Turn Over includes “exempted supplies”.. Does it mean that exempted /nontaxable goods can be sold by retailer but will be taxable at the prescribed rate ?

    1. Mamta Jangra says:

      if a person makes exclusively exempted supplies then he don’t even need to take registration. But if he makes taxable as well as exempted supplies then all turnover will be aggregated to check the limit of 75lakh/150 lakh.
      a retail trader needs to pay tax @1prcnt of taxable turnover only.
      I hope u got the answer of your query..if not, then do let me know

    2. Mamta Jangra says:

      A person making exclusively exempted supplies don’t even need to take registration under GST.
      But if he is making taxable as well as exempted supplies then ALL turnover will be aggregated to check the limit of 75Lakh/150Lakh.
      A retail trader just need to pay tax @1% of TAXABLE supplies only.
      I hope you got the answer of your query…if not, the do let me know.

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