Composition scheme is issued specifically to give benefits to small taxpayers. Composition scheme is an alternative method of levy of tax designed for those taxpayers whose aggregate turnover is below 1.5 Crore and this limit is Rs. 75 Lakhs in case of all north eastern states (except assam) and Uttarakhand.
Who is eligible to opt Composition Scheme?
If the Aggregate turnover of a person does not exceed Rs. 1.5 Cr can opt for composition scheme. But the limit is Rs 75 Lakhs for some specified states such as Arunachal Pradesh, Manipur, Meghalaya, Nagaland, Tripura, Sikkim, Uttarakhand, and Mizoram.
Check out the image given below made by taxofile to understand the meaning of Aggregate Turnover
Who cannot opt for Composition Scheme?
Following persons cannot opt for composition scheme such as;
1. Manufacturer of Notified goods such as;
- Ice-cream & Edible Ice
- Tobacco & Tobacco substitutes
2. Person supplying goods through Electronic Commerce Operator
3. Inter-state supplier of goods
4. Supply of Goods which are not chargeable to GST such as
- Petroleum Crude
- High Speed Diesel
- Motor Spirit
- Natural Gas
- Aviation Turbine Fuel
5. A Casual Taxable Person or Non-Resident Taxable Person
GST Composition Scheme Limit for service Component
A composition dealer can also supply goods to an extent of ten percent of turnover or Rs. 5 Lakhs, whichever is higher.
If Mr. Rishi has opted for Composition Scheme and his aggregate turnover is 120 Lakhs;
Solution: As per the condition he can supply services upto a value of not exceeding;
10% of turnover i.e Rs 12,00,000 (10% of 120 Lakhs) OR
Whichever is Higher = 12,00,000
Therefore, a person can make supply of services upto Rs. 12 Lakhs
GST Composition Scheme Rules
1. The Composition dealer cannot claim Income Tax Credit (ITC) as like a normal taxpayer.
2. A person registered under this scheme shall issue Bill of Supply instead of Tax Invoice.
3. The taxpayer must pay normal tax under Reverse Charge Mechanism.
4. If a taxpayer has different businesses registered under same PAN, then they must register all such businesses under the scheme collectively or opt out of the scheme.
5. The Composition Dealer must specify ‘Composition Taxable Person’ on every notice signboard displayed at a prominent place at his principal place of business and at additional place or places of business.
GST Composition Scheme Tax Rates for Manufacturers, Restaurants, and other Suppliers
The tax rates prescribed for different categories of registered person under the scheme is as follows;
|Sr. No.||Registered person||CGST Rate||SGST Rate||Total Tax Rate|
|1.||Manufacturers||0.5 % of the Turnover||0.5 % of the Turnover||1 % of the Turnover|
|2.||Restaurant Services||2.5 % of the Turnover||2.5 % of the Turnover||5 % of the Turnover|
|3.||Other Suppliers i.e. Traders||0.5 % of the Taxable Turnover||0.5 % of the Taxable Turnover||1 % of the Taxable Turnover|
Benefits of Composition Scheme
1. The Composition Dealer is liable for limited compliance only as compare to normal taxpayer.
2. The tax liability of composition taxpayer is nominal under GST law.
3. High liquidity as tax is at a lower rate
Disadvantages of Composition Scheme
1. composition Dealer is barred from carrying out inter-state sales and cannot offer import-export of goods and services.
2. The person registered under this scheme cannot claim Input Tax Credit (ITC).
3. The taxpayer is not eligible to supply non-taxable products under GST.
4. The taxpayer also cannot supply goods through E-Commerce Operator.
GST Composition Scheme Bill Format
The Bill of Supply issued by the supplier is divided in 4 parts such as;
Basically, this includes all the information regarding supplier such as name of supplier. Address, GSTIN, Bill of Supply Invoice Number and Invoice Date, Contact Number, Email ID
2.Details of Customer:
This section comprises of entire details of its customer to whom the bill of supply has been issued. It includes, Name, Address (Billing as well as shipping) and contact number of customer.
3.Details About Goods:
It gives description about the goods such as Product Name, HSN code, Price/Rate, Number of Units, Discount Allowed, Etc.
This section describes all the terms and conditions regarding agreement / contract, signature of authorised signatory, etc.
Due Date to file return
· The composition dealer is required to file return on quarterly basis.
· The due date to file reports on quarterly basis is 18th of the month succeeding the quarter.
GST Composition Scheme for Service Providers
· This scheme is also known as presumptive scheme for supplier of service which came into force under Notification No. 02/2019.
· The person who is engaged in the supply of services only can get register himself under composition scheme if his aggregate turnover in the preceding financial year does not exceeds Rs. 50 Lakhs.
· Following person is eligible to opt this scheme such as;
- Who is exclusively engaged in supplying services other than restaurant services; Or
- Who is engaged in the supply of services (other than restaurant services) along with supply of goods and/ or restaurant services of not more than Rs. 5 Lakhs.
· Rate of tax shall be 3% CGST & 3% SGST, hence total tax rate will be 6%.
· The person cannot collect tax from recipient, nor shall be entitled to claim ITC
· Supplies shall not be made by taxable person who is;
- Engaged in making supply which is not chargeable to GST
- Engaged making inter-state supply
- Casual Taxable Person or Non-Resident Taxable Person
- Engaged in making supply through ECO (Electronic Commerce Operator)
- Engaged in making supply of notified goods such as Ice-cream and edible ice, pan-masala, tobacco & tobacco substitute.
When person is engaged in the supply of goods with few components of service, ensure that the aggregate turnover is below 1.5 crore to take the benefit of composition scheme. Apart from this, if the person is engaged in the supply of services with few components of goods then ensure that the aggregate turnover is below Rs 50 Lakhs.