The GST composition scheme has been considered as one of the best and simplistic GST mechanisms for small businesses. It is different from the regular 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 it is extremely suitable for small businesses. A taxpayer with an annual turnover of less than 1.5 crores can opt for the composition scheme under GST.
The businesses opting for Composition scheme under GST can avoid complex paperwork and lengthy compliance and can enjoy lower tax benefits. The rate of taxes for businesses registered under the GST composition scheme ranges between 1% to 6% depending upon the nature of the business. The details of the different tax rates in the composition scheme under the Goods and Service Tax composition scheme are explained below.
What is the Composition Scheme in GST?
The GST Composition Scheme is a taxation scheme for small businesses in India. Under this scheme, businesses with an annual turnover of up to Rs. 1.5 crores can opt to pay a low percentage of their turnover as GST instead of the high regular GST rates. This scheme is designed to simplify the tax compliance process for small businesses and reduce their tax burden. The GST Composition Scheme is a beneficial option for businesses that have a low turnover and limited inter-state sales. However, businesses that opt for this scheme are not eligible for input tax credit and are required to file quarterly returns.
GST Composition Scheme Rules
GST Composition Scheme Rules determine the eligibility to opt for the GST Composition Scheme. A wide range of service providers, traders, and manufacturers are eligible to register under the composition scheme in GST, if the annual turnover in the previous year is less than Rs.1.5 Crores. However, the following are some of the persons who are excluded from opting the composition scheme :
- Suppliers engaged in Inter-state supply of goods / services
- Suppliers of Goods 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 is 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 levied 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% |
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.
FAQ's
Q1: What is the GST Composition Scheme Turnover Limit 2022-23?
GST Composition Scheme has prescribed a turnover limit of Rs.1.5 crores for the financial year 2022-23.
Q2: Can I opt for the GST composition scheme in one year and opt out in the next year?
Yes. A taxpayer can do so and switch between the composition scheme GST and regular scheme GST based on the turnover.
Q3: Is it possible that the composition scheme can be applied to each branch of the business separately?
No, the GST Composition Scheme cannot be applied to each branch of a business separately. The scheme is applicable on a PAN (Permanent Account Number) basis, which means that if a business has multiple branches under the same PAN, the turnover of all the branches will be aggregated to determine the eligibility for the scheme.
Q4: 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.
Q5: 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.
Q6: 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.
Q7: What is the GST Composition Scheme for service providers?
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.
Q8: 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.
Q9: 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.
Q10: Are the rates in Composition Scheme under GST for services and goods different?
No. The same rates are applicable to goods-based and service-based businesses under GST Composition Scheme.