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Home » GST » GST Composition Scheme Registration » GST Composition Scheme for Small Taxpayers: A Comprehensive Guide.

Sharanya Radhakrishnan Nair

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GST Composition Scheme for Small Taxpayers: A Comprehensive Guide

Introduction of Composition Scheme

The composition scheme is an alternative way of paying taxes under the Goods and Services Tax (GST) system in India. It aims to simplify the tax compliance process and reduce the burden on small businesses. This mechanism is designed specifically for small taxpayers who have a turnover below a certain threshold.

 

The main objective of the composition scheme is to encourage small businesses to participate in the GST system. By minimizing paperwork and simplifying tax payments, the scheme aims to make GST more accessible and user-friendly for smaller enterprises.

Eligibility Criteria

To qualify for the GST Composition Scheme, businesses must meet certain criteria. Here are the eligibility requirements:

  1. An annual aggregate turnover below a specified threshold.
Threshold limit for Composition scheme :
States Supply of Goods Supply of Services

All other states
1.5 Cr
50 Lakh
Arunachal Pradesh, Assam, Manipur, Meghalaya, Nagaland, Mizoram, Sikkim, Tripura and Himachal Pradesh
75 Lakh
50 Lakh

2. Businesses cannot make interstate supplies under the composition scheme.

3.They should not be involved in the supply of non-taxable goods.

4.Not to be a manufacturer of certain notified goods such as :

    • Ice cream and other edible ice, whether or not containing cocoa
    • Pan Masala
    • Tobacco and manufactured tobacco substitutes
    • Aerated water 
    • Fly ash bricks, Fly ash aggregates, fly ash blocks
    • Bricks of fossil meals or similar siliceous earths
    • Building bricks 
    • Earthen or roofing tiles.

Rates of Composition scheme :

The composition scheme applies different tax rates based on the type of business:

Type of business CGST Rate SGST Rate Total Rate
Manufacturer and traders
0.50%
0.50%
1%
Restaurants not serving alcohol
2.50%
2.50%
5%
Other Service Provider
3%
3%
6%

Limitations and Restrictions :

While the composition scheme offers several advantages, it also has some limitations and restrictions that businesses should be aware of:

  1. Composition taxpayers cannot claim input tax credit on purchases, which may result in higher costs.
  2. Businesses under the composition scheme cannot engage in interstate supplies, which may restrict their growth potential.
  3. Composition taxpayers cannot issue tax invoices; instead, they are required to raise the bill of supply.

Return Filing Frequency and Due Dates :

Composition taxpayers have simplified return filing requirements:

GST Returns

Frequency

Due date

CMP-08

Quarterly

18th of the month succeeding the quarter.

GSTR-4

Annually

30th of the month succeeding the financial year

Conclusion :

The composition scheme provides a simplified and beneficial tax compliance mechanism for small businesses. By reducing paperwork and simplifying tax payments, it allows businesses to focus on their core operations. However, it is important for businesses to carefully consider their eligibility, limitations, and requirements before opting for this scheme.

FAQs on Composition Scheme :

No, GSTR-1 or GSTR-3B filings are not necessary for composition dealers. Composition dealers do not have to file these comprehensive forms and instead have a simplified tax compliance procedure.

No, the composition scheme is an annual option, and you can only choose one scheme for the entire financial year.

If your turnover exceeds the limits during the financial year, you'll automatically switch to the regular scheme and will need to file GSTR-1 and GSTR-3B monthly.

You can opt for the composition scheme by filing an application in Form GST CMP-02 electronically through the GST portal. The application must be filed before the commencement of the financial year for which the option is exercised.

No, when you choose not to participate in the composition scheme, you do not have to pay any extra taxes.

Yes, there are penalties for non-compliance with the composition scheme requirements. In case of late filing of GSTR-4, the business owner will be fined Rs. 100 per day to a maximum amount of Rs. 5,000/-

No, the composition scheme applies to your entire business, not to individual branches. If you have multiple branches, all of your branches will be covered by the composition scheme.

A composition dealer cannot issue a tax invoice. This is because a composition dealer cannot charge tax from their customers. They need to pay taxes out of their pocket. Hence, the dealer has to issue a Bill of Supply.

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