Composition Scheme Under GST Explained - Rate, Rules, Benefits

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Date: 20 Sep 2022


Composition scheme Under GST Explained

Small enterprises can use the GST composition plan, which is an efficient tax-paying method. The business doesn't have to undertake complex paperwork and compliance. The tax liability is also deficient in the case of composition schemes. Small businesses have fixed tax rates, ranging from 1% to 6% of the turnover. It is a great scheme for small business owners.

Benefits Of Composition Scheme 

Below are the benefits of the composition scheme:

  • Less Compliance: Generally, under GST, a taxpayer must file a minimum of 3 returns monthly and one return annually. In short, a taxpayer has to pay 37 returns a year, or a penalty will be levied for noncompliance. It might be difficult for small suppliers and manufacturers to regularly keep meticulous books of accounts and record each transaction with supporting documentation.

While only a quarterly return will be submitted under GSTR-4 by taxpayers under the composition plan,

18th July - 1st Quarter

18th October - 2nd Quarter

18th January - 3rd Quarter

18th April - 4th Quarter

This will reduce the burden of compliance for SMEs, allowing them to concentrate more on their business rather than becoming distracted by compliance procedures.

  • Reduce Tax Liability: The rate structure is another benefit of signing up with the composition program.

  • For Manufacturer = 0.50%(CGST)+0.50%(SGST)=1% of turnover of state/union territory

  • For Suppliers supplying food other than alcoholic liquor for human consumption=

2.5% (CGST)+2.5%(SGST) =5%of taxable turnover of state/union territory

For Other supplies= 0.5% (CGST)+ 0.5%(SGST)=1% of taxable turnover of state/union territory

What Invoices Can Composition Scheme Dealers Issue?

Below are the invoices to be issued by the composition dealer under GST:

  • A dealer under the composition scheme cannot have CGST and SGST on the bill and cannot issue tax invoices.

  • The dealer has to give a bill of supplies in GST

  • Tax is not to be shown separately in the bill

  • In the invoice, it is essential to mention Composition taxable person, not eligible to collect tax on supplies. 

Essential Points of Bill Of Supply

A bill of supply shall contain the following details:

  • Name, address, and GTIN of the supplier

  • A consecutive serial number containing only alphabets and/or numerals unique for a financial year

  • Date of its issue

  • Name, address, and GSTIN/Unique ID Number of the recipient if registered

  • HSN Accounting Code for Goods or Services

  • Value of goods and services are taken into account or decrease if any

  • Signature of supply or its authorised representative. 

Documents A Composition Dealer Issues While Making Supply   

Because they are prohibited from collecting taxes from their clients, composition dealers cannot produce tax invoices. They must pay taxes out of their own pockets. As a result, the dealer must issue a bill of supplies. The dealer must additionally state at the top of the bill of supplies, "Composition Taxable Person, not eligible to collect tax on supplies."

GST Rates Composition Scheme Dealer

The following table explains the tax rate on turnover applicable for composition dealers.

Type Of Business CGST SGST Total
Manufacturers and Traders (Goods) 0.5% 0.5% 1.0%
Restaurants Not Serving Alcohol 2.5% 2.5% 5.0%
Other Service Providers 3.0% 3.0% 6.0%

As per the notification dated 1.01. 2018, turnover in the case of traders has been defined as Turnover of taxable supplies of goods.

Who can and cannot opt for the GST composition Scheme?

The following people cannot opt for the composition scheme:

  • Manufacturers of ice cream, pan masala, and tobacco

  • Person Making Inter-state supplies

  • A casual taxable person o non-resident taxable person

  • A business that supplies goods through an e-commerce operator

How Can Taxpayers Opt For Composition Scheme?

Taxpayers who choose the composition plan must submit form GST-CMP-02 to the government. You can accomplish this by logging into the GST system online. A dealer who wants to use a composition scheme must write to the company at the start of each fiscal year.

How To Calculate Aggregate Turnover For The Composition Scheme?

The total turnover must be calculated over all of India or for a single person using the same permanent account number (PAN). It will be the sum of all outward supplies falling into the following categories:

  • Taxable Supplies

  • Exempt Supplies

  • Exports of Goods or Services or Both

  • Inter-State Supplies

It excludes taxes (including Cess) paid in accordance with GST Law as well as the value of inward supplies for which tax is due on a reverse charge basis.

New GST Composition Scheme

The new composition scheme was recommended at the 32nd GST council meeting for suppliers of services and mixed supplies. This new composition scheme was applicable from 1st April 2019. Below are the amendments to the GST composition scheme:

  • The threshold for GST registration would be kept at Rs. 50 Lakh

  • The GST rate shall be 6% without the availability of input credit.

  • Furthermore, the taxpayers having GST registration under this scheme would require only an annual GST return filing procedure in FORM GSTR-9A. They would not have to file quarterly return GSTR-4.