BUSY is a simple, yet powerful GST / VAT compliant Business Accounting Software that has everything you need to grow your business.
The GST Composition Scheme is designed for small businesses with an annual turnover of taxable goods not exceeding ₹1.5 crore. Under this scheme, the seller is required to pay GST at a reduced rate—1% of turnover for traders and 2% for manufacturers. This tax structure is aimed at reducing the compliance burden on small businesses.
Businesses that meet specific turnover limits are eligible to opt for the Composition Scheme under GST. These businesses must have an annual turnover of up to ₹1.5 crores (₹75 lahks for specified states) for goods or ₹50 lakhs for service providers. The following types of businesses can opt for the scheme –
Furthermore, in March 2022, the government introduced a special scheme for manufacturers of specific types of bricks (e.g., building bricks, fly ash blocks), allowing them to pay a 6% tax rate without input tax credit.
Exclusions from the Composition Scheme –
Reduced Administrative Burden
Since businesses under the Composition Scheme do not need to maintain extensive records for input tax credit (ITC), it simplifies bookkeeping and reduces administrative overhead.
No Need for Input Tax Credit
While not being able to claim ITC may seem like a disadvantage for businesses with low overheads and minimal purchases, this simplifies their operations by avoiding complex ITC reconciliation.
Predictable Tax Liability
Since taxes are paid on a fixed percentage of turnover, e-commerce sellers can better manage and predict their tax liabilities without worrying about fluctuating GST rates.
Improved Cash Flow
A lower tax rate and simplified filing allow businesses to maintain higher liquidity. The reduced tax outflow allows for better cash management and financial flexibility.
Simplified Compliance
The Composition Scheme reduces the complexity of tax filing. E-commerce sellers are required to file fewer returns, maintain minimal records, and issue simplified invoices, easing the overall administrative burden.
Starting in 2023, online businesses with an annual turnover of up to ₹1.5 crore can register for GST online and take advantage of the Composition Scheme.
To create a level playing field between online and offline suppliers, the GST Council has also waived the mandatory GST registration requirement for businesses with an annual turnover of ₹20 lakh, provided they are not engaged in inter-state taxable supply.
According to the amendments made to Section 22 of the CGST Act, businesses that meet these criteria—annual turnover of up to ₹20 lakh and no inter-state taxable supplies—are not required to register for GST.
To opt for the GST Composition Scheme, e-commerce sellers must file GST CMP-02 with the government. This process can be completed online through the GST Portal. Below given is a step-by-step guide to help you file the form:
Step 1: Access the GST Portal
Visit the GST Portal at https://www.gst.gov.in/.
Log in using your GST credentials (Username and Password).
Step 2: Select the Composition Levy Option
Once logged in, navigate to the Registration Menu.
Select ‘Application to Opt for Composition Levy’ from the available options.
Step 3: Review the Composition Levy Application Page
The Application to Opt for Composition Levy page will be displayed.
Note: A warning message will pop up if you are a normal taxpayer who has entered HSN codes for goods or services that are not eligible for the Composition Levy. You will need to remove those ineligible goods or services from the list to proceed.
Step 4: Auto-Populated Details
The system will auto-populate the following details:
Note: If you manufacture goods that are not eligible for the Composition Levy, the system will display an error message when you attempt to select restricted goods.
Step 5: Select Composition and Verification Declaration
Choose the Composition Option and tick the Verification Declaration box.
Step 6: Choose the Authorized Signatory
Select the Authorized Signatory from the drop-down list. Enter the place where the form is being filled out.
Step 7: Save the Application
Click the SAVE button to store the details entered.
Step 8: Confirmation of Saved Application
A confirmation message will appear, stating that the application has been saved successfully.
Step 9: Submit the Application
Click on either ‘SUBMIT WITH DSC’ (Digital Signature Certificate) or ‘SUBMIT WITH EVC’ (Electronic Verification Code) based on your preference.
Step 10: Submit with DSC or EVC
For DSC:
For EVC:
Step 11: Acknowledgment and Confirmation
A success message will appear once the application is submitted.
You will receive an acknowledgement on your registered email and mobile number within the next 15 minutes.
The primary difference between the Composition GST scheme and the Regular GST scheme is in the tax rates and compliance obligations.
In the Regular GST scheme, businesses are required to adhere to higher tax rates and file monthly returns, which can be more cumbersome and time-intensive. This scheme also allows businesses to claim input tax credit (ITC) on purchases, providing greater flexibility in tax management.
In contrast, the Composition GST scheme is designed to ease the burden for small businesses, offering lower tax rates and reducing the compliance workload with quarterly returns. However, businesses under the Composition Scheme cannot avail themselves of input tax credits on their purchases, which limits their ability to offset taxes paid on inputs against output taxes.
This makes the Composition Scheme a simpler option with lower tax obligations but at the cost of limited tax credit benefits.
The GST Composition Scheme offers e-commerce sellers a simpler, more cost-effective way to comply with GST regulations, with lower tax rates and reduced filing requirements. BUSY billing software for supermarkets not only enhances efficiency but also ensures error-free adherence to regulations. Also, BUSY retail billing software helps streamline GST compliance, making it easier to manage filings and records. In fact, a sub-service under this platform is BUSY Recom, which is India’s first eCommerce reconciliation and accounting solution.
BUSY is a simple, yet powerful GST / VAT compliant Business Accounting Software that has everything you need to grow your business.