The composition scheme under GST was introduced with an objective to provide a relief on the tax burden for small taxpayers. Under the composition scheme, the taxpayer can pay taxes at fixed marginal tax rates, ranging between 1% to 6% of the aggregate annual turnover. Also, the composition scheme benefits taxpayers in avoiding the tedious and cost consuming complicated compliances.
Thus, it is extremely fruitful for eligible taxpayers to get enrolled under the GST Composition scheme. A taxpayer with an annual turnover of less than Rs. 1.5 Crore in a particular financial year can opt for Composition scheme until the turnover crosses this limit. We have explained all the conditions of eligibility for opting into the GST Composition scheme below
Eligibility to opt for Composition Scheme
A taxpayer can opt for the Composition Scheme under GST if he or she is a regular taxpayer under GST having an aggregate annual turnover less than Rs. 1.5 crore in a particular financial year. In case of hilly and north-eastern states, this threshold limit is Rs.75 lakhs. Note that as soon as a business registered under the Composite scheme crosses the threshold limit, it will automatically get opted out of the scheme. The following taxpaying entities are eligible for composition scheme under GST:
- Small manufacturing or production units
- Machine Operators
- Truck Operators
- Fruits and Vegetable vendors
- Services based businesses
- Food businesses
- Repair Store
- Shopkeepers
- Artisans
However, there are some tax paying entities which are not permitted to opt for the GST Composition Scheme. An elaborate list of such entities has been provided below.
- Suppliers of goods exempted under GST laws
- Casual Taxable Person
- Manufacturer of ice cream, tobacco or pan masala
- Supplier of goods through an e-commerce operator
- Inter-state supply of Goods
- Non-Resident Foreign Taxpayer
- Tax Collector or TDS Collector
- Input Service Distributor
Conditions to opt for GST Composition Scheme
In order to avail the composition scheme under GST, a taxpayer must fulfill the following conditions:
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A taxpayer opting for the Composition scheme cannot claim Input Tax Credit (ITC) |
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The supplier cannot supply goods that are exempted from being taxed under GST |
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If the taxpayer is paying taxes under the Reverse Charge Mechanism, the taxpayer must pay taxes at the regular rates of GST |
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In case the taxpayer is conducting diverse business activities under the same PAN, then the taxpayer has to obtain GST registration for all the different business activities under the composition scheme collectively or the taxpayer will have to opt out of the composition scheme. |
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On every bill of supply issued by the taxpayer, he or she mentions the words "Composition Taxable Person" |
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Also, the taxpayer has to mention the words "Composition Taxable Person" on every signboard displayed at his or her shop or principal place of business. |
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According to the Central Goods and Services Tax Act, (Amendment), 2018, a Composition Dealer can supply goods or services up to 10% of the annual turnover or Rs. 5 lakh whichever is higher. The aforesaid amendment was implemented from the 1st February, 2019. |
With the above analysis, it can be concluded that the Composition scheme under GST can be opted by a taxpayer with annual aggregate turnover less than Rs.1.5 crores in a financial year. However, there are certain taxpayers who are not permitted to opt for the Composition scheme such as a casual taxpayer, a Non-Resident taxpayer, tax collectors, TDS collectors etc. Also, the GST Composition scheme has significant benefits for small taxpaying entities.
FAQ's
Q1: When is a person opting for the GST composition scheme required to pay tax?
A person opting for the GST composition scheme is required to pay taxes on a quarterly basis i.e. on the 18th day of every month immediately succeeding the quarter for which GST has to be paid.
Q2: Can I opt for the GST Composition Scheme and opt out later?
Yes, a taxpayer can switch between the regular and composition schemes under GST. In the beginning of each financial year, when the taxpayer has to intimate the sale records of the entire year, he shall have the option to switch between the schemes based on his aggregate annual turnover.
The taxpayer also has the option to voluntarily withdraw from the Composition Scheme at this time on the GST portal by submitting an application. However, a taxpayer may face complications in issuing sale invoices and filing GST returns due to such alterations.
The taxpayer also has the option to voluntarily withdraw from the Composition Scheme at this time on the GST portal by submitting an application. However, a taxpayer may face complications in issuing sale invoices and filing GST returns due to such alterations.
Q3: If I dealt in Services previously, can I opt for “Composition Levy”?
Yes. Even if you had been dealing with services, you can opt for Composition Levy from the financial years 2019-20 onwards, provided you are eligible to opt for the Composition scheme.
Q4: What are the GST returns that Composition taxpayers must file?
Composition taxpayers have to furnish GST returns quarterly and annually on the prescribed due dates.
Q5: How to Opt for Composition Scheme under GST?
A taxpayer has to file form GST CMP-02 in order to opt for the Composition scheme under GST on the GST portal. The filing of the aforesaid form can be done by logging into the GST portal. A taxpayer will be given an option at the beginning of every financial year to opt for the composition scheme.
Q6: What are the benefits of the Composition scheme?
The following are some of the benefits of the Composition Scheme under GST:
- Reduced tax liability
- Reduced compliances under GST including issuance of invoices, returns, maintenance of books of accounts, etc.
- Availability of higher liquidity with the taxpayer due to low tax burden