Composition Scheme Under GST

In order to provide relief to a small supplier of goods and some services, an option has been provided to small suppliers with aggregate annual Turnover up to Rs 50 lac to opt for Composition scheme under GST.


How to compute aggregate Turnover?

“Aggregate Turnover” means Value of all outward supplies (taxable supplies + exempt supplies + exports + inter-state supplies) of a person having the same PAN Minus

  1. CGST
  2. SGST
  3. UTGST
  4. Tax paid under Reverse Charge on Inward supplies


Concessional rate of tax under composition scheme

  1. For Manufacturers, other than manufacturers of such goods as may be notified by the Government – 1% of Turnover in State/UT and in Centre i.e effectively it is 2%
  2. For Suppliers providing restaurant services- 2.5 % of Turnover in State/UT and in Centre i.e effectively it is 5%
  3. For any other supplier eligible for composition levy- 0.5% of Turnover in State/UT and in Centre i.e effectively it is 1%


Threshold limit for composition scheme

The benefit of a scheme can be availed up to the turnover of Rs. 50 Lakhs in current financial year. It may further be noted that the option availed shall lapse from the day on which his aggregate turnover during the financial year exceeds Rs.50 Lakhs.

In a case of persons having multiple GST registration, all registered persons having the same Permanent Account Number (PAN) have to opt for composition scheme. If one registered person opts for a normal scheme, others become ineligible for composition scheme.


Who are all not eligible for composition scheme?

Following categories of persons who have taken GST registration are not eligible to opt for the composition scheme:

  1. Supplier of services other than supplier restaurant service;
  2. Supplier of goods which are not taxable under the CGST Act/SGST Act/UTGST Act.
  3. An inter-State supplier of goods;
  4. Person supplying goods through an electronic commerce operator;
  5. Manufacturer of certain notified goods.


Salient Features of composition scheme under GST are as under:

  1. The Composition scheme under GST is not available for the casual taxable person or Non-Resident Taxable person.
  2. Registered person under composition scheme is not eligible to claim input tax credit.
  3. Customers who buy goods from registered person who is under composition scheme is not eligible for composition input tax credit because a composition scheme supplier cannot issue a tax invoice.
  4. The goods which are held as stock should not have been
  • through Interstate purchase or sale or
  • Imported goods or
  • Received from branch outside the state or
  • Received from his agent or principal outside the state
  • Purchased from an Unregistered person or He should have paid taxes on them
  1. The person shall pay taxes on an inward supply of goods or services or both received from unregistered persons.
  2. He should not have been doing manufacturing during the preceding financial year.
  3. He should mention the words “composition taxable person, not eligible to collect tax on Supplies” at the top of the bill of supply issued by him.
  4. He should mention the words “composition taxable person” on every notice or signboard Displayed at a prominent place at his principal place of business and at every additional place or places of business.
  5. Once registered under composition scheme, the registered person may not file a fresh intimation every year and he may continue to pay tax under the said section subject to the provisions of the Act and these rules.


Procedure of GST Registration under Composition Scheme

  1. Any person who wish to go for Online GST registration and to whom a provisional registration has been granted and who wants to opt for composition scheme, shall file an intimation electronically in Form GST CMP-01 prior to appointed date and not later than 30 days after appointed date.
  2. If a person applies for registration under rule Registration1, He/She may give an option to pay tax under section 10 in Part B of FORM GST REG-01, which shall be considered as an intimation to pay tax under the said section.
  3. In case any registered person wants to opt for composition scheme, He/She shall electronically file an intimation in FORMGST CMP-02, prior to the commencement of the financial year for which the option to pay tax under the aforesaid section is exercised and shall furnish the statement in FORM GST ITC-3 within sixty days from the commencement of the relevant financial year.
  4. Any person who files an intimation under sub-rule (1) to pay tax under section 10 shall furnish the details of stock, including the inward supply of goods received from unregistered persons, held by him on the day preceding the date from which he opts to pay tax under the said section, electronically, in FORM GST CMP-03, within sixty days of the date from which the option for composition levy is exercised or within such further period as may be extended by the Commissioner in this behalf.
  5. Any intimation under sub-rule (1) or sub-rule (3) in respect of any place of business in any State or Union territory shall be deemed to be an intimation in respect of all other places of business registered on the same PAN.


Validity of composition levy

  1. Option is valid as long as the person satisfies all the conditions mentioned in the said section and
  2. In case person ceases to satisfy any of the conditions mentioned in section 10 or rules, shall issue a tax invoice for every taxable supply made thereafter and he shall also file an intimation for withdrawal from the scheme in FORM GST CMP-04 within seven days of the occurrence of such event.
  3. A person who wants to withdraw from the composition scheme shall, before the date of such withdrawal, file an application in FORM GST CMP-04, duly signed, electronically.
  4. In case proper officer has reason to believe that registered person has contravened any provisions or is not eligible for composition scheme, he may issue a notice to such person in FORM GST CMP-05 to show cause within fifteen days of the receipt of such notice as to why option to pay tax under section 10 should not be denied.
  5. Upon receipt of reply to the show cause notice from the registered person in FORM GST CMP-06, the proper officer shall issue an order in FORM GST CMP-07 within thirty days of receipt of such reply, either accepting the reply, or denying the option to pay tax under section 10 from the date of option or from the date of the event concerning such contravention, as the case may be.
  6. Every person who has furnished an intimation under sub-rule (2) or filed an application for withdrawal under sub-rule (3) or a person in respect of whom an order of withdrawal of option has been passed in FORM GST CMP-07 under sub-rule (5), may electronically furnish, a statement in FORM GST ITC-01 containing details of the stock of inputs and inputs contained in semi-finished or finished goods held in stock by him on the date on which the option is withdrawn or denied, within 30 days, from the date from which the option is withdrawn or from the date of order passed in FORM GST CMP-07, as the case may be.