COMPOSITION SCHEME
Composition Scheme is a simple and easy scheme under GST for taxpayers. Small
taxpayers can get rid of tedious GST formalities and pay GST at a fixed rate of turnover.
This scheme can be opted by any taxpayer whose turnover is less than Rs. 1.5 crore.
A taxpayer whose turnover is below Rs 1.5 crore can opt for Composition Scheme. In
case of North-Eastern states and Himachal Pradesh, the limit is now Rs 75 lakh. As per
the CGST (Amendment) Act, 2018, a composition dealer can also supply services to an
extent of ten percent of turnover, or Rs.5 lakhs, whichever is higher. This amendment
will be applicable from the 1st of Feb, 2019.
Turnover of all businesses registered with the same PAN should be taken into
consideration to calculate turnover. The following people cannot opt for the scheme-
Manufacturer of ice cream, pan masala, or tobacco
A person making inter-state supplies
A casual taxable person or a non-resident taxable person
The following conditions must be satisfied in order to opt for composition scheme:
No Input Tax Credit can be claimed by a dealer opting for composition scheme
The dealer cannot supply goods not taxable under GST such as alcohol.
The taxpayer has to pay tax at normal rates for transactions under the Reverse
Charge Mechanism
If a taxable person has different segments of businesses (such as textile,
electronic accessories, groceries, etc.) under the same PAN, they must register all
such businesses under the scheme collectively or opt out of the scheme.
The taxpayer has to mention the words ‘composition taxable person’ on every
notice or signboard displayed prominently at their place of business.
The taxpayer has to mention the words ‘composition taxable person’ on every
bill of supply issued by him.
As per the CGST (Amendment) Act, 2018, a manufacturer or trader can now also
supply services to an extent of ten percent of turnover, or Rs.5 lakhs, whichever
is higher. This amendment will be applicable from the 1st of Feb, 2019.
The following people cannot opt for the scheme-
Manufacturer of ice cream, pan masala, or tobacco
A person making inter-state supplies
A casual taxable person or a non-resident taxable person
To opt for composition scheme a taxpayer has to file GST CMP-02 with the government.
This can be done online by logging into the GST Portal. This intimation should be given
at the beginning of every Financial Year by a dealer wanting to opt for Composition
Scheme. Here is a step by step Guide to File CMP-02 on GST Portal.
Advantages of Composition Scheme
Lesser compliance (returns, maintaining books of record, issuance of invoices)
Limited tax liability
High liquidity as taxes are at a lower rate
Disadvantages of Composition Scheme
A limited territory of business.
The dealer is barred from carrying out inter-state transactions
No Input Tax Credit available to composition dealers
The taxpayer will not be eligible to supply non-taxable goods under GST such as
alcohol and goods through an e-commerce portal.
Applicable GST Rates for Composition Scheme
CGST SGST
Manufacturer & Trader 0.5% 0.5%
Restaurants not serving alcohol 2.5% 2.5%
Other Service providers 3.0% 3.0%
