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Composition scheme in GST – Eligibility, Rates , forms & Conditions

Composition scheme in GST

Composition Scheme in GST has been introduced to provide an alternate and hassle-free way to small taxpayers to file returns. A person opting for composition scheme must pay a fixed percentage of annual turnover to the government. In the 32nd GST Council meeting, composition scheme was also made applicable for the supplier of service having an aggregate turnover of up to Rs. 50 Lakh.

Composition scheme in GST – Return & Payment of Tax

It is a voluntary scheme for persons whose aggregate turnover during the year does not exceed the prescribed limit i.e. Rs. 1.5 crore. However, the same for northeastern states and hill states is kept at Rs. 75 lakhs due to smaller tax base as compared to other states in India.
A dealer not opting for composition scheme normally must file two monthly returns GSTR-1 and GSTR-3B. However, a dealer opting for composition scheme must file GSTR-4, a quarterly return.
GSTR-4 is a quarterly return to be filed by the 18th of next month from the month of the end of the quarter. For example, the due date of GSTR-4 for the quarter of April to June is 18th July.

Composition scheme of GST eligibility – who cannot opt for the scheme

Composition scheme in GST - Return & Payment of Tax

All persons whose turnover does not exceed the prescribed limit can opt for the composition scheme in GST, except the following class of persons:

i. A casual taxable person

ii. A non-resident taxable person

iii. A person engaged in providing an inter-state supply of goods

iv. A person engaged in the supply of non-taxable goods

v. A person supplying goods through e-commerce operators (ECO) and collecting tax at source

vi. The goods held in stock by the business during the appointed day should not have been purchased –

    • during inter-State trade or commerce; or
    • imported from outside India; or
    • received from branch situated outside the State; or
    • from his agent or principal outside the State where registration under the Composition Scheme has been taken.

vii. A person who has a stock of goods purchased from an unregistered supplier. However, this condition is not applicable if tax is paid under reverse charge mechanism on such goods

viii. The person engaged in the manufacturing of Ice cream and other edible ice, whether containing cocoa

ix. The person engaged in the manufacturing of pan masala, or tobacco and manufactured tobacco substitutes

Rate of Taxes under Composition scheme in GST

S. No. Description Rate (%)
1 Manufacturers 2% (i.e. 1% CGST & 1% SGST)
2 Restaurant Service 5% (i.e. 2.5% CGST & 2.5% SGST)
3 Services/Mixed Services (other than restaurant services) 6% (i.e. 3% CGST & 3% SGST)
4 Other Suppliers not excluded from composition scheme 1% (i.e. 0.5% CGST & 0.5% SGST)

Invoice/Bill of Supply

A person opting for the composition scheme in GST cannot issue a regular invoice or tax invoice as per the provisions of the GST. However, every dealer registered under the composite scheme must issue the bill of supply.

The bill of supply issued should have the following words at the top on every such bill issued.

“Composition Taxable Person, Not Eligible to Collect Tax on Supplies”

Format of Bill of Supply

A bill of supply must include the following fields as per the law-

  1. The Supplier name, GST Identification Number (GSTIN) and Address
  2. The unique serial number termed as the bill of supply number
  3. The date of issue of the bill of supply
  4. Recipient details such as name, address, and GSTIN (if registered)
  5. HSN code of goods being supplied
  6. Description/quantity of goods/services (as applicable)
  7. The total value of supplies
  8. Signature/digital signature of the supplier

Conditions to be followed

The Act has prescribed some conditions that must be followed by a person opting for composition scheme in GST. A dealer registered under the scheme must:

  1. Issue bill of supply in the prescribed manner
  2. Pay all taxes on purchases including taxes to be paid on a reverse charge basis
  3. Not claim an input tax credit of purchases
  4. On every notice board or signboard, should quote the words “Composition Taxable Person”, at important locations on his every place of business, and
  5. Withdraw from the scheme if not eligible

Since the inception of GST, cross-utilization of credit is also made available

The process to withdraw from Composition scheme of GST

If a person wants to withdraw from the scheme or becomes ineligible for the scheme, there is guidance in the act. In such case, a person must file an intimation for withdrawal from the scheme in the FORM GST CMP-04. If there is an event which caused such ineligibility, then a person must file Form GST CMP-04 within 7 days of such ineligibility.

Forms under Composition Scheme

Form Description
GST REG-01 It is a form filed by a person not registered to opt for GSTIN and Composition Scheme
GST CMP-01 Form filed by the provisionally registered assessee; Intimation for tax payment under composition scheme
GST CMP-02 Form filed by the dealer to opt for composition scheme
GST CMP-03 Form filed to intimate the department, details of stock including inward supply from unregistered person
GST CMP-04 Filed to withdraw from GST composition scheme
GST CMP-05 It is a Show Cause Notice, issued by the department on contravention of any law
GST CMP-06 It is a reply to the show-cause notice, issued in Form GST CMP-05
GST CMP-07 It is an order of acceptance/rejection of reply filed in Form GST CMP-06
GST ITC-01 Filed when dealer opts out of the scheme, containing details of the inputs available with the dealer.

We can conclude the composition scheme in GST is an asset for small businessmen. It not only reduces the compliances but also makes it easier to file returns. The taxpayers opting for this scheme have to carefully adhere to rules prescribed under the act. In case of failure to comply, you can be served with a show-cause notice. Overall, an effective tool provided to business in India.

FREQUENTLY ASKED QUESTIONS (FAQs)

1. Does a person have to obtain GSTIN to opt for composition scheme in GST?

Yes, a person needs to obtain registration under GST for opting for the Composition Scheme in GST

2. Can a person registered under GST in more than one state opt for composition scheme in one state and not opt for the same in another state?

If you have registration in more than 1 state under the same pan card, then you cannot opt for composition scheme in 1 state only

3. I am ineligible for composition scheme in Uttar Pradesh, can I opt for the same in Delhi?

If you are ineligible for composition scheme under the same pan in one state and the same applies to the other states

4. Can I buy goods from outside states if I opt for composition scheme in GST?

You can make an inter-state inward supply of goods under the composition scheme. However,  you cannot make the inter-state outward supply of goods.

5. Can I issue a taxable invoice in the composition scheme under the GST law?

A registered dealer opting for a composition scheme, cannot issue a valid tax invoice under the GST. However, such a person can issue a bill of supply.

6. Can I claim Input Tax Credit on the purchase of goods in the composition scheme?

No, a registered dealer cannot claim the benefit of input tax credit under the composition scheme.

7. Can a restaurant be supplying alcohol/liquor is eligible for a Composition scheme?

No, a restaurant engaged in supplying of alcohol and liquor is not eligible to opt for composition scheme.

8. What happens if a person under composition scheme crosses the aggregate turnover limit?

If a person in Composition scheme crosses the threshold limit of Rs. 1.5 crore, in case of goods, or Rs. 50 lakhs for services. Then, in such cases, the person must inform the department within 7 days in Form GST CMP-04.

StairFirst is an e-service platform which provides company registration, corporate compliances, GST, income tax-related and other professional services related to startups / new and old businesses. Contact Us for details

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