The GST composition scheme has been considered as one of the best and simplistic GST mechanisms for small businesses. It is different from the normal form of GST filing, where a taxpayer takes credit of GST paid on inputs and files monthly or quarterly GST return to comply with applicable provisions. Under the composition scheme, the taxpayer is subject to a reduced rate of GST and less compliance; hence is the most suitable for small businesses. A taxpayer with an annual turnover of less than 1.5 crores can opt for the composition scheme under GST.
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The businesses opting for the aforesaid scheme can avoid complex paperwork and lengthy compliance and can enjoy lower tax benefits. The rate of taxes for businesses registered under the composition scheme ranges between 1% to 6% depending upon the nature of the business. The details of the different tax rates under the composition scheme under Goods and Service Tax composition scheme is explained below.
GST Composition Scheme Rules
A wide range of service providers, traders, and manufacturers are eligible to register under the composition scheme if the annual turnover in the previous year is less than 1.5 Crores. However, the following are some of the person who is excluded from opting the composition scheme:
- Supplier is engaged in Inter-state supply
- The goods are being supplied through an e-commerce operator
- Non-Resident Foreign Taxpayer
- Casual taxable Person
- Manufacturer of notified goods
- Input Service Distributor
- Tax Collector
- TDS Collector
GST Composition Scheme Limit
The limit of the Goods and Service Tax composition scheme limit varies depending on the nature of business. The details whereof are furnished below:
- Traders and Manufacturers: If a business is registered newly under GST and turnover of the said business is less than Rs. 1.5 Crore in that particular financial year. If an existing business is registered under GST and the turnover is less than Rs. 1.5 Crore over the last financial year.
- Restaurants (Serving non-alcoholic items); If a business is registered newly under GST and the turnover of the said business is less than Rs. 1.5 Crore in that particular financial year. If an existing business registered under GST and the turnover is less than Rs. 1.5 Crore over the last financial year.
- Service Providers; If a business is registered newly under GST and the turnover of the said business is less than Rs. 50 Lakh in that particular financial year.
Note: The businesses must comply with the regular structure of paying GST in case the turnover exceeds the aforesaid prescribed limit.
Rate of Tax under GST Composition Scheme
A table containing the details of the tax rate on turnover depending on the nature of the business under the Goods and Service Tax composition Scheme is provided below:
Applicable GST Rate for Composition Dealers
| S.No | Type of Business | GST | CGST | SGST |
|---|---|---|---|---|
|
1. |
Manufacturers and Traders of Goods |
1% |
0.5% |
0.5% |
|
2. |
Restaurants excluding serving Alcohol |
5% |
2.5% |
2.5% |
|
3. |
Service Providers |
6% |
3% |
3% |
|
4. |
Manufacturers of bricks, blocks, roofing tiles, etc. |
6% |
3% |
3% |
FAQ's
Can I opt for the composition scheme in one year and opt out in the next year?
Yes. A taxpayer can do so and switch between the composition scheme and regular scheme based on the turnover.
Is it possible that the composition scheme can be applied to each branch of the business separately?
It is to be noted a taxpayer under a composition scheme is generally considered to have opted for all businesses that are associated with a single PAN.
Can a composition dealer sell a product at a lower price than regular dealers?
Yes. A composition dealer can sell a product at a lower rate as compared to the regular dealer as they cannot charge GST on such sales. Thus, the consumer pays less money than usual.
Is it possible to opt-in for the composition scheme anytime during the year?
No. It is not possible to opt for the composition scheme anytime during the year. A taxpayer has to provide a declaration on the GST portal prior to the beginning of each financial year in order to opt for the composition scheme.
What will happen if I opt out of the composition scheme mid-year?
If a taxpayer opts out of the composition scheme mid-year, then all the regular rules under GST will be applicable on such taxpayer from the date of opting out of the composition scheme. Accordingly, the taxpayer has to file for GSTR-1 and GSTR-3B.
Can a supplier engaged in providing services opt for a composition scheme?
No. A supplier engaged in providing services cannot opt for a composition scheme. However, there is an exception to the same, if a taxpayer is engaged in restaurant services, then he can opt for the composition scheme.
What is the validity of the composition Scheme?
The validity to pay taxes under the composition scheme would remain so long as the conditions prescribed under Section 10 of the Central Goods and Services Tax Act, 2017 and Rule 3 to 5 of the Central Goods and Services Tax rules, 2017 remains fulfilled.
Is it possible that I can save the Application to Opt for Composition Levy?
Yes. You can save the application but it can be saved up to 15 days from the date of application. After 15 days, it will be automatically purged by the system. The Saved Applications can be seen using the function “My Saved Applications” available in the taxpayer interface.
Conclusion
With the above analysis, it can be concluded that the rates of GST under composition scheme vary considering the nature of business whether it is service provider, manufacturer and traders of goods or manufacturers of bricks or blocks etc.
