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What is Composition Scheme Under GST

See the related post : List of Revised GST Tax Rates

"Composition Scheme", After Introduction of GST, it becomes a great hardship for small business men. Under GST regime, the small business men/dealers face a great problem like filing of 3 monthly returns + 1 Annual Return and expenses like accounting charges for maintenance of books of accounts etc.

To solve the problems of these small retailers and other business men, GST Act has come out with the scheme called “COMPOSITION SCHEME”.


Composition Scheme-

Composition scheme is an alternative method of levying tax meant for small taxpayers with low turnover. The scheme has been designed with the aim to make compliance easier and cost effective for the taxpayers. Under this scheme the taxpayers have pay tax at lower rate and file one quarterly return or one annual return only.


Eligibility under Composition scheme-

A taxpayer whose turnover is below to Rs. 1 crore* amended in Composition scheme in 32nd GST coucil meeting held on 10th Jan'19, can opt for Composition Scheme but in case of North-Eastern states and Himachal Pradesh, the limit is Rs 75 lakh.

But on any given day, if turnover crosses the above-mentioned limit, then he becomes ineligible and has to take registration under the regular scheme.

Turnover of all businesses with same PAN has to be added up to calculate turnover for the purpose of composition scheme.

* Changes in Composition Scheme w.e.f. 01st April 2019-
  • GST council has increased the threshold limit of annual turnover for Composition scheme raised to Rs 1.5 crore from Rs. 1 Crore w.e.f. 1st April 2019
  • Businesses whose under GST Composition Scheme from April 1st 2019, has to file just one annual return, but pay taxes once every quarter.
  • Those providing services or mixed supplies (goods and services) with a turnover up to Rs. 50 lakh per annum will now be entitled to avail composition scheme.
  • Compounding rate for services under composition scheme is fixed at 6 percent.
Conditions for availing Composition scheme-
  • The dealer cannot be claimed Input tax credit paid on purchase of goods.
  • The dealer cannot supply exempted goods.
  • The dealer cannot make Interstate supply of goods.
  • The dealer under Composition Scheme has to issue Bill of Supply and cannot issue tax invoice.
  • The composition dealer has to mention ‘composition taxable person’ on every bill of supply.
  • The dealer who opts composition scheme must display “Composition Taxable person” at their place of business.
  • Service Providers are not eligible for Composition Scheme except those who provide 10 percent services from their annual turnover


Who cannot opt Composition scheme-

The following people cannot opt for the scheme:

  • Supplier of nontaxable goods (supplying exempt supplies).
  • Supplier of services other than restaurant related services.
  • Manufacturer of ice cream, pan masala, or tobacco.
  • Casual taxable person or a non-resident taxable person.
  • Any person engages in the Interstate supply of goods.
  • Businesses which supply goods through an e-commerce operator.


Tax liability under Composition scheme-


Rate of CGST on Turnover

Rate of SGST on Turnover

Total Tax rate on Turnover

Manufacturers and Traders




Restaurants not serving Alcohol





Which form of Return to be filed under Composition scheme-
  • Quarterly Return* amended in Composition scheme in 32nd GST coucil meeting held on 10th Jan'19,- Under Composition scheme, the dealer has to file their quarterly return in “Form GSTR-4”, it is filed by 18th of the month succeeding relevant quarter, for example return for the 2nd quarter Jul’18-Sep’18, must be filed up to 18th October 2018.
  • Annual Return- Under Composition scheme, the dealer has to file their Annual Return in “Form GSTR-9A”, it is filed by 31st December of the next financial year, for example return for the financial year 2017-18, must be filed up to 31st December 2018.


Benefits under Composition scheme-
  • The composition dealer has made less compliance as compared to normal taxpayers i.e. filing only one quarterly return + one annual return* amended in Composition scheme in 32nd GST coucil meeting held on 10th Jan'19,.
  • The composition dealer has another advantage to pay tax on supply of goods at lower rates.
  • The dealer has more liquidity and cash flow.
  • The dealer has not required to maintain books of accounts regularly. It will reduce the burden or save time.


Drawbacks under Composition scheme-
  • The composition dealer has to pay tax from their pocket.
  • The dealer cannot avail Input tax credit against purchase of goods.
  • The dealer cannot deal in Interstate transactions or import export of goods and services.
See the related post : GST credit on Capital Goods


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