What is the Composition Scheme Under GST?

The GST Composition Scheme or Composition Levy Scheme is an optional tax method for small taxpayers to simplify compliance and reduce costs. It is available to businesses with an annual turnover of up to ₹1.5 crores for goods (₹75 lakhs for Uttarakhand and North-Eastern States) and service providers with turnover up to ₹50 lakhs at a 6% tax rate (3% CGST + 3% SGST).

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• Arunachal Pradesh
• Assam
• Manipur
• Meghalaya
• Mizoram
• Nagaland
• Sikkim
• Tripura
• Himachal Pradesh

Who Are Not Eligibile for the Composition Scheme?

• Casual Taxable Persons: Those who occasionally supply goods or services in a State or Union Territory where they don’t have a fixed business location.
• Non-Resident Taxable Persons: Individuals who occasionally supply goods or services but do not have a fixed place of business or residence in India.
• Inter-State Suppliers: Those engaged in the supply of goods or services across State borders.
• Suppliers of Non-Taxable Goods: Those dealing in goods not covered under GST.
• Suppliers Using E-Commerce Operators: Those supplying goods through platforms where the operator must collect tax under Section 52 of the CGST Act.
• Manufacturers of Notified Goods: Those producing goods specified under Section 10(2)(e) of the CGST Act, 2017.

GST Composition Scheme Tax Rates

• Manufacturers: Pay 1% of turnover (0.5% CGST + 0.5% SGST/UTGST.

• Service Providers: Pay 6% of turnover (3% CGST + 3% SGST/UTGST).

• Restaurant Services: Pay 5% of turnover (2.5% CGST + 2.5% SGST/UTGST).

• Traders: Pay 1% of taxable turnover (0.5% CGST + 0.5% SGST/UTGST).

Effective Date of Composition Scheme under GST

• For Those with Provisional Registration: If you opt for the composition levy (Rule 3(1)), the effective date is 22nd June 2017 .
• For New Applicants: If you choose the composition levy while applying for new registration (Rule 3(2)), it becomes effective from the date of registration , but the option is valid only after registration is granted.
• For Existing Registrants: If you opt for the composition levy after already being registered (Rule 3(3)), it is effective from the start of the financial year .

How is Aggregate Turnover Calculated for the Composition Scheme?

• Purchases are subject to reverse charge GST.
• GST components like Central, State/UT, Integrated taxes, and cess.

Conditions & Restrictions of the GST Composition Scheme

• Issue Bills Correctly: Provide bills of supply in the prescribed format.
• Pay Taxes on Purchases: Pay all taxes on purchases, including those under reverse charge, if applicable.
• No Input Tax Credit: Do not claim Input Tax Credit on purchases.
• Display Status: Clearly mention “Composition Taxable Person” on notice boards or signboards at all business locations.
• Exit if Ineligible: Stop using the scheme if eligibility conditions are no longer met.

When Can I Opt for the Composition Levy?

Benefits of the GST Composition Levy Scheme

• Less Compliance: Small businesses file quarterly tax and annual returns instead of monthly, reducing paperwork and allowing more focus on business.
• Lower Tax Rates: Composition taxpayers pay just 6% GST on supplies, compared to 12% or 18% for regular taxpayers.
• Better Cash Flow: Tax is paid at a nominal rate without depending on suppliers filing returns, freeing up working capital.

Limitations of the GST Composition Levy Scheme

• No Input Tax Credit: Taxpayers and their buyers cannot claim credit for taxes paid.
• No Inter-State Business: Only local transactions are allowed; inter-state sales and exports are restricted.
• Tax from Own Pocket: Tax cannot be charged from buyers, and tax invoices cannot be issued, adding to the taxpayer's burden.