Composition Scheme in GST - Detailed Guide

Meaning of Composition Scheme

​For providing relief to small scale business in complying with rules and regulation under GST provisions, a simpler method of paying taxes and accounting thereof is prescribed, and it is called as Composition levy. This will make them burden free from spending so much time on GST compliance.

This composition scheme is almost similar to the composition schemes prevalent in previous vat regime in almost all states. It gives the tax payer to pay tax  at a flat rate without claiming input credit and makes the procedural compliance very easy.

​Turnover Limit for opting the scheme

​Only taxable persons whose ‘aggregate turnover’ does not exceed Rs.1.5 Crore in a financial year will be eligible to opt for payment of tax under the composition scheme.

​Aggregate turnover means,

Value of (taxable supplies + Exempt supplies + Exports +Inter-state supplies) – (Taxes levied under GST + Value of supplies taxable under reverse charge) of a person having the same PAN.

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Note: Only persons who deals in goods can opt for such scheme. Service providers are kept outside the scope of the scheme, except for restaurants who does not serve alcohol can opt for the composition scheme.

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Effective date for composition levy

​Effective date shall be either the beginning of FY or the appointed date as the case may be and for new applicant effective date shall be fixed as per registration rules.

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Invoicing under composition scheme

​1. A composition dealer cannot issue tax invoice instead has to issue a Bill of Supply.

2. The dealer should also mention “composition taxable person, not eligible to collect tax on supplies” at the top of the Bill of Supply.

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GST Rates under Composition Scheme

​1. Manufacturer and Traders (Goods)- 1%

2. Restaurants not serving Alcohol- 5%


Returns filing under Composition Scheme

​1. Quarterly Return: A dealer is required to file a quarterly return GSTR-4 within 18th after the end of the quarter.

2. Annual Return: An annual return of GSTR-9A has to be filed by 31st December of next financial year.


Late Fees under GST

​1. The late fees for failure to furnish returns in GSTR-4 by the due date are Rs. 50 per day for every day the failure continues. And

2. In case of the filing of Nil Returns in GSTR-4, late fee is Rs. 20 per day for every day the failure continues. 


Points to be Observed:​

​1. The scheme would become applicable for all the business verticals / registrations which are separately held by the person with same PAN.

​2. If the business verticals in two different states, it should have only ‘Intra-State (within state)’ supplies.

​3. The taxable person is prohibited from collecting tax from the recipient.

​4. The taxable person will not be eligible for any input tax credit and once limit crossed he can be eligible to clime the input credit in respect of inputs held in stock.

​5. He is neither a casual taxable person nor a non-resident taxable person.

​6. Stock held shouldn't have been purchased from unregistered persons. And also from interstate trade or commerce or imports outside India or interstate branch transfer. ​

7. GST Payment has to be made out of pocket. The consumer/ the receiver of supplies will not be liable to pay GST to the supplier who has opted for Composition Scheme.

​8. The dealer cannot supply GST exempted goods

9. Apart from supplying goods can provide services of up to Rs.10 lakh,

​10. He shall mention the words “composition taxable person” on every notice or signboard displayed at a prominent place at his each place of business.

​11. Person should not make sales through any e-commerce portal like Amazon or Flipkart.


Opting out from composition scheme​

1. The person who doesn’t satisfy any condition for eligibility or ceases to be satisfied under this scheme has to pay tax at normal rates and issue tax invoice from the day such condition ceases to be satisfied. ​

2. He is required to file an intimation in Form GST CMP-04 within seven days of withdrawal from the scheme.​

3. The person who wants to withdraw from such scheme voluntarily has also to file Form GST CMP-04 before the date of such withdrawal.

​4. Upon filing of GST CMP-04, one has to furnish GST ITC-01 within 30 days containing details of the stock of inputs and inputs contained in semi-finished or finished goods held in stock by him on the date on which the option is withdrawn or denied as the case may be.

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