Composition scheme under gst

Composition levy is an optional scheme of levy of tax designed for small taxpayers in the Goods and Services Tax (GST) regime. Under the composition scheme, tax is levied at a reduced rate with less compliance. Composition dealer, the person who opted for a composition levy, needs to pay GST at a prescribed percentage of his turnover every quarter.

GST composition scheme limit

The composition scheme turnover limit in GST is 1.50 crores that mean taxpayers whose aggregate turnover is less than this limit may apply for the composition scheme.

However, the turnover limit for composition levy for goods shall be Rs 75 lakhs in respect following 8 of Special Category States:

• Arunachal Pradesh
• Manipur
• Meghalaya
• Mizoram
• Nagaland
• Sikkim
• Tripura
• Uttarakhand

In the case of Special Category States of Assam, Himachal Pradesh and Jammu and Kashmir, the turnover limit will be 1.5 crores.

Note, the composition scheme shall be withdrawn from the day on which the aggregate turnover during a financial year exceeds the threshold limit i.e Rs 1.5 crore [Rs. 75 lakhs in case of 8 Special Category States]

Aggregate turnover under composition levy

Aggregate turnover is defined under section 2(6) of CGST Act, 2017 which is reproduced as under:

“Aggregate turnover” means the aggregate value of all taxable and non taxable supplies, exempt supplies and exports of goods and/or services of a person having the same PAN, to be computed on all India basis and excludes taxes, if any, charged under the CGST Act, SGST Act and the IGST Act, as the case may be; Explanation – Aggregate turnover does not include the value of supplies on which tax is levied on reverse charge basis and the value of inward supplies”.

In simple language,

Aggregate turnover includes:

• Taxable supplies
• Exempted supplies
• Non-GST supplies
• Interstate supplies
• Zero-rated supplies
• Goods sent for job work

Aggregate turnover excludes:

• Goods or services received on which tax payable under reverse charge mechanism
• Tax paid GST laws
• Goods received for job work

Note, it is computed on a PAN India basis.

List of persons who are not eligible for composition scheme under GST

(a) Supplier of goods whose aggregate turnover in the preceding financial year exceeds Rs 1.5 crore.

(b) Inter-state supplier of goods.

(c) Supplier of services other than restaurant services.

(d) Any person engaged in making non-taxable supply.

(e) Casual Taxable Person or Non-Resident Taxable person.

(f) Any person who was engaged in the manufacture of the following goods during the preceding FY:

• Ice cream and other edible ice, whether or not containing cocoa [2105 00 00]
• Pan masala [2106 90 20]
• All goods of Chapter 24, i.e. Tobacco and manufactured tobacco substitutes
• Aerated Waters [2202 1010]

(g) Taxpayer engaged in any supply of goods through an electronic commerce operator who is required to collect tax at source under section 52.

Conditions and restrictions for opting composition scheme

(a) Tax cannot be collected from customers.

(b) A taxable invoice cannot be issued. Bill of supply will be issued instead of tax invoice.

(c) The word “Composition taxable person” must be mentioned on every bill of supply issued by the composition dealer.

(d) The word” Composition taxable person” must be mentioned on every notice or signboard displayed at the place of business.

(e) Exempted/non-taxable goods cannot be supplied.

(f) Input tax credit cannot be claimed. Tax paid under the GST composition scheme is covered under Blocked Credit and therefore benefit of an input tax credit will not be available to the composition taxpayer.

*(g) Inter-state supply of goods is restricted.

*Note, composition dealers can purchase goods or services from other states but the supply of goods or services outside the state is restricted.

How to apply for a composition scheme on the GST portal?

The option to pay tax under composition levy can be exercised prior to the commencement of the relevant financial year. Following steps need to perform on the GST official website to opt for a composition scheme-

Step 1: Visit the login page of GST official Website.

Step 2: Enter valid login credentials.

Step 3: Post login, navigate to the “Services” > Registration > “Application to opt for Composition levy”

Step 4: On this screen,

• Check the “Composition Declaration” box
• Check the “Verification” box to confirm and declare that information given in the application is true and correct to the best of your knowledge
• Select the “Name of Authorized Signatory” from the drop-down
• Enter the “Place”
• Click on the “Save” button
• Submit your application using any of the three options available-
  • “SUBMIT WITH DSC”
  • "SUBMIT WITH E-SIGNATURE"
  • “SUBMIT WITH EVC”

Step 5: A Warning pop-up will be displayed on the screen. Click the “PROCEED” button.

On the successful filing of a composition scheme registration application, a success message will appear on the window and the applicant will receive acknowledgment on the registered mobile number or email.

Contents of bill of supply

Composition dealers cannot issue a tax invoice as they are not permitted to collect tax from customers. Dealer has to issue a bill of supply specifying the particulars as given below-

(a) Name, address, and GST number of the supplier

(b) Bill of Supply number (a consecutive serial number not exceeding 16 characters)

(c) Issue date of the bill

(d) Name, address, and GST number of the recipient if the recipient is registered in GST law

(e) Description, Value (after adjusting discounts, if any), and HSN code of goods

(f) Signature or digital signature of composition dealer  

GST rates notified for composition dealer

GST composition forms

Below is the complete list of GST forms involved in the composition scheme.

GST returns for composition dealer

Recent updates

28th May 2021

(i) GSTR-4 for FY 2020-21 can be filed up to 31st July 2021.

(ii) The maximum late fee for GSTR-4 is restricted to Rs.500 per return for nil filing and Rs. 2000 for other than nil filing.

1st May 2021

(i) The due date to file GSTR-4 for FY 2020-21 extended to 31st May 2021.

(ii) Relaxation is given in the interest charges for late filing of Form CMP-08  for January-March 2021. No interest for filing on or before 8th May, interest reduced to 9% between 9th May and 23rd May but charged at 18% thereafter.

15th February 2021

The due date for filing GSTR-4 return for FY 2020-21 is 30th April 2021.

31st August 2020

The last date for filing Form GSTR-4 for the FY 2019-20 from 31st August 2020 to 31st October 2020.

6th August 2020

Now, GSTR-4  can file using an excel-based offline tool on the GST portal.

21st July 2020

The facility to file GSTR-4 is now available on the GST portal. 13th July 2020 The due date to file GSTR-4 has been extended to 31st August.

Difference between regular scheme and composition scheme