Composition Scheme under Goods and Service Tax (GST) was introduced for the small taxpayers. This scheme ensures that small businesses are not burdened with the responsibility of unending compliances under the law. This scheme also evens out the competition for small players by bringing in a favorable mode of taxation.

A registered person can opt for this scheme under GST. It allows him to pay taxes at a fixed percentage of the turnover. The composition scheme can be opted by a registered person engaged in the supplying of goods or services or both.

A registered person in order to be eligible should have a turnover of less than Rs. 1.5 crores. This limit was increased from the previous limit of 1 crore by the 32nd GST Council Meeting. It came into effect from 1st April 2019. The turnover limit for North Eastern and the hilly regions still stands at Rs. 75 lakhs.

The provisions for this scheme are laid down under Section 10 of the GST law. Here are a few of the benefits of this scheme:

• Simplified compliances

• Reduced costs

• Quarterly payments

• Lesser formalities

• Tax payment at a fixed rate of the turnover

Who can opt for the composition scheme?

• Traders or manufacturers with a maximum taxable turnover of up to ₹1.5 crores.

• Traders or manufacturers of the North-Eastern States and other hilly regions with a turnover of up to ₹75 lakh

• A service provider with a taxable turnover of up to ₹50 lakh

Exclusion:

• Following suppliers cannot opt for this scheme:

  • Restaurant owners (Those serving non-alcoholic drinks and food)

  • Non-taxable goods suppliers

• Those engaged in the supply of goods inter-state

• E-commerce operators (they are eligible to collect TCS)

• Non- resident/casual taxable persons

• Suppliers of exempted goods

• In case purchase of goods is made by a business from an unregistered supplier (this is allowed when GST is paid on reverse charge mechanism on such goods)

• Suppliers of the following:

  • Tobacco

  • Ice cream

  • Edible ice

  • Pan masala

Tax rate under the scheme:

Eligible traders and other suppliers: Applicable rate is 1% of the turnover

Manufacturers (Excluding products that are not eligible under this scheme): Applicable rate is 2% of the turnover

Restaurant Services: 5% of the turnover

The business providing mixed services: 6% of the turnover

Bill format under Composition Scheme

Businesses or individual registered persons under this scheme are restricted from issuing of tax invoices. This is because GST cannot be charged by them on the supply of goods or services. Hence under this scheme, the dealer has to issue Bills of Supply.

This bill of supply must have the words “Composition Taxable Person, Not Eligible to Collect Tax on Supplies” mentioned on it. Following are the mandatory details required to be included in a Bill of Supply are:

• Name of the Supplier

• GST Identification Number or ‘GSTIN’

• Address

• Bill of supply number

• Date of issue of a bill of supply

• Consecutive serial number

• Recipient details:

  • GSTIN in case the recipient is registered

  • Name

  • Address

• HSN code of goods being supplied

• Accounting Code for the services being provided

• Description of goods or services

  • Quantity

  • Value of supplies

• Signature

• Supplier’s digital signature

Rules of the Composition Scheme:

• Input Tax Credit under this scheme cannot be claimed

• Electronic returns are to be filed every quarter

• Filing is to be done on the official GST Portal

• Registered businesses or individuals have to clear off the payments by the 18th  of the subsequent month for the previous quarter

• GSTR-4 Form is required for filing of quarterly returns

• Form GSTR-9A is necessary for the filing of annual returns. This is to be filed by Dec 31st of the subsequent financial year.

• Tax payment under Reverse Charge Mechanism is at normal rates

• In the case of multiple businesses, these are required to be registered collectively under this scheme

• The words ‘Composition Taxable Person’ has to be displayed compulsorily on every signboard or notice at the place of business.

• The words ‘Composition Taxable Person’ needs to be cited on each and every bill issued

• A registered person engaged in the supply of goods can also engage in supply services. The limit for the same is set at Rs.5 Lakh under the composition scheme.

• Under this scheme, individuals or businesses can buy goods or services from outside the state. These, however, cannot be sold to consumers or businesses outside the state.

The composition scheme under GST is a beneficial option for small taxpayers. Opting for this scheme is optional and a registered person can decide to switch over between schemes based on the turnover.