What is Composition Scheme in GST?

Composition Scheme under GST is a scheme which offers comparatively lesser compliance’s.

Small taxpayers can get rid of various GST formalities and can pay GST at a fixed rate of turnover.

For fresh registrations under the GST Composition Scheme, an intimation in Form GST REG- 01 must be filed.

Who are ineligible to take composition scheme?

This scheme can be opted by any taxpayer whose turnover is less than Rs. 1.5 Crores. In case of North-Eastern states and Himachal Pradesh, the limit is Rs 75 lakhs.

Persons ineligible to Opt GST composition scheme-

  • Manufacturer of ice cream, pan masala, or tobacco.
  • Casual Taxable Person or a Non-resident Taxable Person
  • Supplier of services other than restaurant related services(i.e.Restaurants are allowed)
  • Taxpayer supplying Exempt supplies
  • Businesses which supply goods through an e-commerce operator.

What are the Compliances and Rules in GST Composition?

1. The major disadvantage of this scheme is that NO INPUT TAX CREDIT is allowed to the Composition Supplier.

2. RCM has to be paid as per normal tax rate.

3. The dealer cannot supply supply non-taxable goods like Alcohol under composition scheme.

4. The taxpayer has to mention the words ‘composition taxable person’ on every notice or signboard displayed prominently at their place of business.

5. The taxpayer has to mention the words ‘composition taxable person’ on every bill of supply issued by him.

6. The taxpayer have to opt for composition scheme for all the GSTIN registered under same PAN.

7. No Inter-state supply of goods can be done.

8. Supplier can now also supply services to an extent of ten percent of turnover, or Rs.5 lakhs, whichever is higher.

Can Composition Supplier issues tax invoice to their customer?

A composition dealer cannot issue a tax invoice. This is because a composition dealer cannot charge tax from their customers. They need to pay tax out of their own pocket. Hence, the dealer has to issue a Bill of Supply. The dealer should also mention “composition taxable person, not eligible to collect tax on supplies” at the top of the Bill of Supply.

Returns Under Composition Scheme?

A GST composition scheme dealer is required to file a quarterly composition return form i.e. Form GSTR-4 by the 18th of the month after the end of the quarter. Also, an annual composition return form i.e. Form GSTR-9A has to be filed by the 31st of December of the next financial year.

GST rates for composition dealer

Manufacturer and Traders 0.5% CGST and 0.5% SGST.
Restaurants (Not Serving Alcohol) 2.5% CGST and 2.5% SGST.
Service Providers 3% CGST and 3% SGST.
  • The taxes you pay come from your own packet, you can’t recover anything from customer in name of taxes. (Just like Direct Taxes)

Thanks for Reading!

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Qualification: CA in Practice
Location: Meerut, Uttar Pradesh, India
Member Since: 10 Apr 2021 | Total Posts: 7
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  1. vinaipal says:

    Congratulations for good article.However, supplier of exempt goods are not eligible for composition appears to be incorrect.Only those goods which are not under GST , if taxable person deals with them, he is ineligible i,e he is not engaged in making any supply of goods which are not leviable to tax under this Act.Secondly, taxable person shall not be engaged in interstate outward supply.Inward interstate purchase is permissible. The return position is Quarterly Return in GSTR 8 within 18 days of next month after the end of quarter and Annual return in GSTR 4 before end of the month following month in which financial year ends.Plese comment if I am right ?For Covid situation the time which ended on 31.3.2021 for 2020-21 is extended.

    1. CA PARAKH GUPTA says:

      Thank you for taking up the time to review my article.
      All the points u mentioned above is correct and i also included that point in the point “Compliances and rules under GST”.

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