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Quick Snapshot
If your turnover is under ₹1.5 Crores (or ₹75 Lakhs if you’re in one of the 8 special category states), the Composition Scheme is worth knowing about. Service providers get a separate limit of ₹50 Lakhs. The tax rates are flat and low and anywhere between 1% and 6% depending on what you supply and instead of filing returns every month, you just file a quarterly payment form and one annual return. The catch is that you can’t charge tax from your customers, you can’t claim input tax credit, and you can’t make inter-state sales. Also, if your business has multiple GST registrations on the same PAN, all of them have to be on the composition scheme, you can’t pick and choose. The moment your turnover crosses the limit, the scheme ends and you move to regular GST.
What is aggregate turnover u/s 10(1)?
Aggregate Turnover = Taxable Supplies + Exempt supplies (including non-taxable supplies) – Inward RCM Supplies – (Taxes in GST, if included in taxable supplies component) [computed on all India basis on same PAN] Inclusion: Aggregate turnover includes supplies made from 1st day of financial year up to the date when person becomes liable for registration Exclusion: Amount of interest or discount earned on loans, advances or deposits extended.
Who is eligible?
For supplier of goods:
Taxpayers whose aggregate turnover in previous financial year is up to ₹1.5 Crores. They will be eligible for composition levy for aggregate turnover up to ₹1.5 Crores in current financial year only. The point when the turnover exceeds ₹1.5 Crores, they have to register as regular taxpayers. Note: The limit of ₹1.5 Crores is to be construed as ₹75 lakhs in respect of 8 special category states namely: Arunachal Pradesh, Meghalaya, Nagaland, Tripura, Manipur, Mizoram, Sikkim and Uttarakhand.
For supplier of services:
Limit is ₹50 lakhs.
Rate of Taxes
| Category | CGST | SGST |
|---|---|---|
| Manufacturers, other than notified goods (notified goods are explained in next section of this article) | 0.5% of entire turnover in the State/UT | 0.5% of entire turnover in the State/UT |
| Restaurant & Other outdoor catering services | 2.5% of entire turnover in the State/UT | 2.5% of entire turnover in the State/UT |
| Other Traders | 0.5% of only taxable goods or services | 0.5% of only taxable goods or services |
| Supplier of services | 3% of entire turnover in the State/UT | 3% of entire turnover in the State/UT |
Note: Turnover in State/UT does not include:
1. Supplies made from 1st day of financial year up to the date when such person becomes liable for registration.
2. Amount of interest or discount earned on loans, advances or deposits extended.
Who is not eligible to opt for composition scheme u/s 10(2)?
1. Supplier can supply value of services up to the higher of below:
• 10% of turnover in state/UT in previous financial year, or
•₹5 Lakhs
If the value of services supplied is more than the limit determined above, then he is ineligible to opt for Composition scheme.
2. Supplier of goods or services which are not leviable to GST.
3. Supplier of inter-state outward supplies of goods or services.
4. Person supplying services through an E-commerce operator (ECO), who is required to collect tax at source u/s 52.
5. Manufacturer of notified goods:
a. Ice cream and other edible ice, whether or not containing cocoa
b. Pan masala
c. Aerated water, containing added sugar or other sweetening matter or flavoured
d. All goods, i.e., Tobacco and manufactured tobacco substitutes
e. Fly ash bricks, fly ash aggregates, fly ash blocks
f. Building of bricks
g. Earthen or roofing tiles
Note: However, the trader of above listed goods is eligible for composition scheme.
Note: There is no restriction on inter-state procurement of goods or services.
6. Supplier is CTP or NRTP.
Conditions for composition levy
1. A bill of supply must be issued in place of a tax invoice.
2. Every bill of supply issued must carry the words “composition taxable person, not eligible to collect tax on supplies” at the top.
3. The words “composition taxable person” must appear on every notice or signboard placed at a prominent location at the principal place of business and at every additional place of business.
4. A composition scheme supplier cannot charge or recover tax from the buyer on any supply made.
5. A composition supplier is not entitled to claim input tax credit on any inward supplies.
6. Tax on inward supplies covered under reverse charge mechanism must be paid under Section 9(3) or 9(4) at the rates applicable to normal taxpayers.
7. The supplier must not have been involved in the manufacture of any notified goods during the previous financial year.
8. All registered persons operating under the same PAN must opt for the composition scheme together. If even one of them chooses to remain under the normal scheme, all others under that PAN become ineligible for the composition scheme.
9. If a person has paid tax under the composition scheme despite being ineligible for it, such person shall be liable to penalty. The tax liability and penalty in such cases shall be determined under Section 73, Section 74, or Section 74A of the CGST Act, as applicable.
How to get the registration?
| Particulars | New Registration | Already Registered to Composition Levy |
|---|---|---|
| From for application | FORM GST REG-01 | FORM GST CMP-02 |
| When to apply? | When applying for registration | Before beginning of financial year |
| Effective date of composition levy | From the effective date of registration | Beginning of financial year |
| Stock Statement | – | FORM GST ITC-03 within 60 days from the financial year from which composition levy is applied |
Validity of composition levy
| Expires | From the day on which aggregate turnover exceed specified limit (₹1.5 Crores/₹75 Lakhs/₹50 Lakhs) |
| Intimation for withdrawal | Within 7 days from expiry |
| ITC Availment | Stock statement in FORM GST ITC-01 within 30 days from date of withdrawal in respect of stocks of inputs and capital goods held on the date of withdrawal |
Note: Intimation for withdrawal from any place of business in any state/UT shall be deemed to be an intimation in respect of all other places of business on the same PAN.
Payment of Tax & Returns filing
| FORM & Use | Due Date |
|---|---|
| FORM GST CMP-08 (for payment of tax on quarterly basis) | On or before 18th of month next to relevant quarter |
| FORM GSTR-4 (Annual return) | On or before 30th day of June following the end of financial year |
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