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Another important provision under GST (Goods and Service Tax) which is all set to roll out in July 1, 2017 is composition Scheme. The main aim of composition Scheme is to minimize the compliances of Startups & small and medium Enterprises (SMEs), unlike Regular dealer. Let’s understand with an illustration:

Under Composition Scheme
Purchase 50,000
VAT@5% 2,500
Dealer Cost 52,500
Margin 5,250
Sales Price 57,750
Customer Price 57,750
Tax payable @1% on Turnover (INR 66,000) 577.50

 From above illustration, following important points can be concluded:

  1. Input Tax Credit (ITC) will not be allowed to composite dealer (it is added to the cost).
  2. It is not allowed to collect tax.
As a Regular Dealer
Purchase 50,000
VAT@5% 2,500
Dealer Cost 50,000
Margin 5,000
Sales Price 55,000
VAT@5% 2,750
Customer Price 57,750
Tax payable

Output VAT- 2750

Input VAT-  2500


 From above illustration, following important points can be concluded:

  1. Input Tax Credit (ITC) will be allowed to composite dealer (it is added to the cost).
  2. It is allowed to collect tax & issue tax invoice.

So, from above, we can easily make out the difference between the composite dealer and the regular dealer.

Now, let’s have a look on its applicability:

Places Trigger limit

(Aggregate turnover*)

North East India + Sikkim, Himachal Pradesh & Uttarakhand Rs.10 lakhs – Rs. 50 lakhs (previous year)
Rest of India Rs. 20 lakhs- 50 lakhs (previous year)

 *aggregate turnover means ‘value of all (taxable, exempt and export supplies and inter-State supplies) – (Taxes + Value of inward supplies + Value of supplies taxable under reverse charge) of a person having the same PAN and has to be computed on all India basis for the relevant financial year.

Rate of Levy

Sl No Category of registered persons Rate of tax
1 Manufacturers, other than manufacturers of such goods as may be notified by the Government 1%
2 Suppliers making supplies referred to in clause (b) of paragraph 6 of Schedule II 2.5%
3 Any other supplier eligible for composition levy under section 10 and these rules 0.5%

Person liable for Composition Scheme

Businesses dealing in only goods can only opt for composition scheme, Services Provider have been kept outside the scope of this scheme. However restaurant sector taxpayers may also opt for the scheme.

A dealer registered under composition scheme is not required to maintain detailed records as in the case of a Normal Taxpayer.

 Conditions for availing Composition Scheme

  • A service supplier cannot opt for this scheme.
  • Permission will not be granted to a person, who makes any supply of goods, which does not attract GST levy.
  • Such a person should not have Inter- State supply of goods.
  • He should not avail any credit

Impact of Composition Levy

  • Composition dealer is not eligible to avail the credit of input tax paid
  • He is not entitled to effect inter-State supply of goods
  • Composition dealer is not eligible to collect tax

Return Forms under Composition Levy

Return type Frequency Due date Details to be furnished
Form GSTR-4A Quarterly Auto-populated details of inward supplies made available to the recipient registered under composition scheme on the basis of FORM GSTR-1 furnished by the supplier.
Form GSTR-4 Quarterly 18th of succeeding month All outward supplies of goods and services including auto-populated details from Form GSTR-4A and tax payable details. Details of any additions, modifications, or deletions in Form GSTR-4A should also be submitted in Form GSTR-4.
Form GSTR-9A Annual 31st December of next fiscal year Consolidated details of quarterly returns filed along with tax payment details.


If a business has opted for composition levy without meeting the conditions above, penalty shall apply. Penalty may be as much as the tax actually payable under GST. The business will be given a notice and allowed an opportunity to show cause.

The entire Composite Scheme has remained the same along with its concepts, when compared to old VAT and GST Law.

Author: C S Ekta Maheshwari is the Author of this article and is Company Secretary by profession. The Author can be reached at csektamaheshwari14@gmail.com

Disclaimer: The entire contents of this article is solely for information purpose and have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation.. It doesn’t constitute professional advice or a formal recommendation. The author has undertook utmost care to disseminate the true and correct view and doesn’t accept liability for any errors or omissions. You are kindly requested to verify & confirm the updates from the genuine sources before acting on any of the information’s provided herein above.


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July 2024