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Everything about GST Composition Scheme

February 21, 2020

GST Composition Scheme

Since April 1, 2019 taxpayers have been facilitated with an increased turnover limit for the applicability, inclusion of service providers and reduced tax rates through GST Composition Scheme. Important points about GST Composition Scheme are discussed in this article for the readers’ knowledge and understanding.

What is GST Composition Scheme?

Composition Scheme is a tax paying mechanism coming under GST for taxpayers. It is applicable for small businesses. Composition Scheme offers two advantages:

  • Reduced paperwork and compliance
  • Lower tax liability

For taxpayers under the normal scheme, they had to return three monthly GST returns - GST 1, GST 2 and GST 3 and one annual return. Under GST Composition Scheme, taxpayers need to file just one quarterly return (GSTR4) and one annual return (GSTR 9A). Under GST Composition Scheme, the taxpayer needs to pay 1% to 6% of their turnover.

Who is Eligible for GST Composition Scheme?

Taxpayers who have turnover below Rs.1.5 Cr are eligible to be categorized under Composition Scheme. The limit is different for the North Eastern States and Himachal Pradesh and is Rs.75 Lakhs.
According to the CGST Amendment Act, 2018, under Composition Scheme, a dealer can supply services to an extent of 10% of turnover or Rs.5 Lakhs, whichever is higher, which came into effect from February 1, 2019.

Who is Not Eligible for Composition Scheme?

People falling under the following categories cannot opt for the scheme:

  • Ice cream, pan masala or tobacco manufacturer
  • Inter-state supplier
  • Casual taxable person or non-resident taxable person
  • Supplier of goods through E-commerce medium

What are the Conditions for Availing Composition Scheme?

Those who choose Composition Scheme should fulfill the following conditions:

  • Dealer opting Composition Scheme cannot claim Input Tax Credit
  • GST excluded goods cannot be supplied by the dealer
  • The taxpayer is liable to pay normal transaction rates applicable under Reverse Charge Mechanism
  • A taxable person who has various business under the same PAN number, then all these businesses needs to be registered together under the scheme or exit of the scheme
  • The taxpayer should mention “composition taxable person” on every business letters like notice, displayed signboard and bill of supply issued by him/her at their business place.

What are the Tax Rates Applicable for GST Composition Scheme?

A fixed tax rate is applied to your business turnover after registering under GST Composition Scheme and these rates are as follows:

  • Goods Manufacturers & Traders:0.5% CGST+0.5% SGST totals to 1% GST 
  • Restaurants (not serving alcohol):2.5% CGST+2.5% SGST totals to 5% GST
  • Service Providers :3% CGST+3% SGST totals to 6% GST

How to Apply for GST Composition Scheme?

Taxpayers can apply for the GST Composition Scheme online through the GST website portal The user has to then file GST CMP-02 as your acceptance for coming under the GST composition. The intimation should be provided by the dealer opting for the Composition Scheme at the beginning of every Financial Year.

What Benefits do Composition Scheme Offer?

GST Composition Scheme has the following advantages:

  • Tax payments are lessened: This new tax rate structure has reduced the liabilities of taxpayers
  • Lesser compliance requirements: Book maintenance and records are at ease as the taxpayers have to file only fewer returns and there will be a minimal requirement for tax invoices 
  • Improved liquidity: Reduced tax liability through fixed rates leads to improved liquidity which in turn offers better cash flow. This will ease your business operations. 

GST Composition Scheme is an intelligent way that makes simpler the taxation process and reduces tax liability. Hence the Composition Scheme offers better working capital management for businesses. 

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