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.
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:
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Note, the composition scheme shall be withdrawn from the day on which the aggregate turnover during a financial year exceeds the threshold limit i.e Rs 1.5 crore [Rs. 75 lakhs in case of 8 Special Category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 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:
Aggregate turnover excludes:
Note, it is computed on a PAN India basis.
(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:
(g) Taxpayer engaged in any supply of goods through an electronic commerce operator who is required to collect tax at source under section 52.
(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.
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,
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.
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
S.No. |
Category of person |
CGST |
SGST |
Total |
1 |
Manufacturers and traders |
0.5% |
0.5% |
1% |
2 |
Restaurant Services |
2.5% |
2.5% |
5% |
Below is the complete list of GST forms involved in the composition scheme.
Form No. |
Description |
GST CMP-02 |
Registered taxpayers who opt for the composition scheme will have to intimate in form CMP-02 on the GST portal. |
GST CMP-03 |
The composition dealer has to file form CMP-03 within 90 days from the date of filing CMP-02. This form contains the detail of stock held by the dealer on the date of registering in the composition scheme. |
GST CMP 04 |
Composition dealer has to file form CMP-04 in the following cases – (a) He voluntarily exits from the scheme (b) Turnover exceeds the specified limit (c) He fails to comply with any of the conditions of the scheme |
GST CMP 05 |
Form CMP-05 is used by the officer to issue SCN to the dealer asking why he should be allowed for a composition scheme. |
GST CMP 06 |
CMP-06 is filed by the taxpayer in response to notice received in form CMP-05. This form must be filed within 15 days from the date of receipt of CMP-05 |
GST CMP 07 |
Form CMP-07 is the order of acceptance or rejection issued by the proper officer in response to CMP-06 received from the taxpayer. A rejection order in CMP-07 is issued by an officer after giving an opportunity of being heard to the taxpayer. |
Return |
Description |
Periodicity |
Due date |
CMP-08 |
Statement containing the details of payment of self-assessed tax |
Every quarter or part thereof |
18th of the month succeeding the quarter |
GSTR-4 |
Annual return containing the summary of outward supplies, Inward supplies, import of services, and supplies attracting reverse charge |
Every financial year or part thereof |
30th day of April following the end of such financial year |
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.
Basis |
Regular scheme |
Composition scheme |
Registration |
Mandatory if turnover exceeds the specified limit |
Optional (Turnover must be less than 1.5 crores) |
Input tax credit (ITC) |
ITC can be reduced while paying GST |
ITC cannot be reduced while paying GST |
Compliances |
More compliances |
Fewer compliances |
GST levy |
Levy at higher rates |
Levy at a fixed lower rate |
Territory of business |
Unlimited territory of business |
Supplies can be made within the state only |
GST collection |
GST can be collected from customers |
GST cannot be collected from customers |
Invoicing |
A tax invoice shall be issued |
Bill of supply shall be issued instead of tax invoice |
Causal taxable person or non-resident taxable person |
Casual taxable person or non-resident taxable person should apply for GST registration online |
Casual taxable person or non-resident taxable person cannot opt for a composition scheme |
Manufacturing activity |
No restrictions |
Manufacturing of ICE cream, pan masala, tobacco is prohibited |
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