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GST Composition Scheme Rates under GST, Eligibility and More Details

Updated: Sep 21,2019 10:26 IST

Vikram Sharma

GST Composition Scheme Rates under GST, Eligibility and More Details
GST Composition Scheme was introduced along with the Goods and Services Tax for the benefit of the taxpayers. GST Composition Scheme can be availed as per the guidelines given in the Scheme and those eligible can opt for the Scheme within the financial year. More details on GST Composition Scheme, Eligibility Criteria, Rates and Other Information are furnished in the article.

Why GST Composition?

GST or Goods and Services Tax was implemented from July 1, 2017 as an initiative to have a single common taxing system across the Nation. With the introduction of GST, tax filing has been increased i.e. around three filings has to be done in a month and an annual filing should also be done making upto 37 filings in a year. One has to make the filing at the right time, at the right period and have to maintain those records. Bigger firms have a separate finance department and finance experts maintain the records, but when coming to small enterprises sometimes GST filing turns out quite a tedious process. To make the process easier and to help small taxpayers in simple tax filing, GST composition was specially designed for small taxpayers with turnover up to Rs. 75 lakh (Rs.50 lakh for north-eastern states). More details on GST composition is given in the content below.

An Overview on GST Composition

Goods and Services Tax is single uniform system of tax collection implemented in India. With the GST implementation certain other bills were also passed in order to meet the needs of larger groups who needed special taxing under GST. One such alternative provided was GST Composition Scheme, where the qualified taxpayer/ small taxpayers i.e. one with annual income of not more than Rs. 75 lakhs (Rs. 50 lakh for north-eastern states) can pay fixed percentage of tax of their annual turnover and don’t fall under regular GST taxing. GST Composition scheme was made in order to make it simple and also to reduce the compliance cost for the small taxpayers.

GST Composition History

  • GST Composition aimed at simpler and reduced compliance cost for small taxpayers while filing their tax returns. GST Composition is applicable only for those taxpayers specified in the Scheme. According to the Scheme that was introduced first, small taxpayers with an annual turnover of not more than Rs.75 lakh (Rs.50 lakh for northeastern states) came under GST composition and those eligible can pay tax at a fixed percentage of the turnover on quarterly basis and need not follow normal tax paying rate.
  • In the month of October 2017, GST Composition Scheme was revised and the threshold limit of annual turnover 75 lakh was increased to Rs. 1 crore. 
  • At the GST Council 23rd meeting in the month of November 2017, it was once again decided to increase the threshold to Rs. 1.5 crore and also to amend the law with a threshold of Rs. 2 crore. With the increase in threshold, small taxpayers with annual turnover of up to Rs 1.5 crore can register in GST composition and avail the Scheme.

How to avail GST Composition Scheme? 

Taxpayers who are currently paying taxes under normal tax range but are eligible for GST composition Scheme can choose to opt under GST Composition Scheme but only from the beginning of the next financial year. With the revised thresholds number of small taxpayers will fall under the scheme. The application requesting for the Scheme should be filled in before March 31 of the previous year so that the returns can be filed with respect to the scheme. Those who are already availing the Scheme can also switch to the normal tax paying even in the current year, but will not be able to switch back to Composition scheme again in the same year.

Who are Eligible to Register under GST Composition Scheme?

The basic eligibility will be the annual turnover of the small taxpayer and for the specified goods and services mentioned in the Scheme. The eligibility of the particular taxpayer remains as long as it falls under the conditions of the Scheme. The eligible person who can opt for this scheme are
  • Manufactures (except manufactures of Ice cream, Pan Masala, Tobacco products, etc)
  • Restaurant Services
  • Traders or any other supplier eligible for composition levy

Who are Not Eligible to avail GST Composition Scheme?

GST Composition Scheme is given for a specified group but then under these specified group there are people who are not eligible to avail the GST Composition Scheme and they are listed below
  • Non-resident taxable person or a casual taxable person
  • suppliers whose aggregate turnover in the preceding financial year crossed Rs. 75 lakhs
  • Supplier who has purchased any goods or services from unregistered supplier unless he has paid GST on such goods or services on reverse charge basis
  • Supplier of services, other than restaurant service
  • Persons supplying goods which are not taxable under GST law
  • Persons making any inter-State outward supplies of goods
  • Suppliers making any supply of goods through an electronic commerce operator who is required to collect tax at source under section 52
  • Manufacturers of Ice cream and other edible ice, whether or not containing cocoa, Pan masala and Tobacco and manufactured tobacco substitutes

What is the Duration of GST Composition Filing?

GST Composition Scheme was introduced with the main aim of reducing the tax filing burden upon the small taxpayers. As the tax levied is of lower percentage, the number of tax filing also is also lower for the GST Composition Scheme. A normal taxpayer has to make three filing per month and an annual filing with a total of 37 filings a year. But for those who opt for the Scheme need not do the filing for every month. 
  • Tax filing has to be done on quarterly basis i.e. four filings per year.
  • Also an annual tax filing has to be made.
  • Taxes has to be paid before 18th of the month succeeding the quarter during which the supplies were made.
  • The dates will be April 18th, July 18, October 18, and January 18.

GST Composition Scheme Rates

GST Rates fixed for Composition Scheme is different from the normal tax rates. The specified tax rates for the Composition Scheme is
 

Registered Person

Tax Rate

Manufactures (other than manufactures of Pan Masala, Ice Cream, Tobacco products, etc.)

2% (1% Central tax plus 1% State tax) of the turnover

Restaurant Services

5% (2.5% Central tax plus 2.5% SGST) of the turnover

Traders or any other supplier eligible for composition levy

1% (0.5% Central tax plus 0.5% State tax) of the turnover

How should a Composition Dealer pay GST?

A composition dealer has to pay GST from his own money. He cannot collect taxes from their customers. Composition dealer cannot issue tax invoice. Dealer has to issue only the Bill of Supply. Composition dealer should pay GST for the following.

  • GST on supplies
  • Tax on reverse charge
  • Tax for the purchases from unregistered dealer

What are the Benefits of GST Composition Scheme?

There are many benefits of registering under GST Composition Scheme are listed below.

  • Lesser compliance 
  • Tax Liability is limited
  • Low tax rate results in high liquidity.

What are the Demerits of GST Composition Scheme?

Though there are benefits with this GST composition scheme, it also comes along with some demerits. They are listed below.

  • Dealers are restricted from carrying out inter-state transactions.
  • There is a limited boundary for expansion of business.
  • Composition dealers are not provided with the option of input tax credit.
  • Taxpayer will not be able to supply goods through e-commerce websites.

More Details on GST Composition Scheme 

  • The option to pay tax under Composition Scheme will be applicable for all States.
  • Aggregate turnover will be computed on the basis of turnover on an all India basis and will include value of all taxable supplies, exempt supplies and exports made by all persons with same PAN, but would exclude inward supplies under reverse charge as well as central, State/Union Territory and Integrated taxes and cess.
  • The registered person who intends to withdraw from the composition scheme can file a duly signed or verified application in FORM GST CMP-04.
  • The registered person opting to pay tax under composition scheme is required to pay an amount equal to the input tax credit in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date of exercise of option.

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