Composition Scheme

Composition Scheme Under GST Explained, Rules, Turnover Limit, Rate, Benefits

Composition Scheme:- For taxpayers, the GST Composition Scheme is a straightforward and easy scheme. Taxpayers who are tiny can eliminate burdensome GST regulations and pay GST at a fixed turnover rate. Any taxpayer with less than Rs. 1.5 crore in revenue* may choose to participate in this scheme. The GST search tool allows you to determine if a taxpayer chose a composition plan or not. Input any GSTIN to find out if the taxpayer chose the composition scheme or is a standard taxpayer by looking at the “Taxpayer Type” column in the results.


Who can opt for the Composition Scheme?

The Composition Scheme is available to taxpayers with a taxable income of less than Rs 1.5 crore. The maximum has been raised to Rs 75 lakh for Himachal Pradesh and the Northeastern states. A composition dealer may provide services up to 10% of turnover, or Rs. 5 lakhs, whichever is larger, in accordance with the CGST (Amendment) Act, 2018. Effective February 1, 2019, this amendment will be in effect. Additionally, the GST Council suggested raising this cap for service providers on January 10, 2019*, during its 32nd meeting. To compute turnover, all businesses registered under the same PAN should have their turnover taken into account.

Composition Scheme

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Who cannot opt for the Composition Scheme?

The following individuals cannot sign up for the program:

  • producer of tobacco, pan masala, and ice cream.
  • A person who supplies states across.
  • a taxable person who is not a resident or a temporary taxable person.

Benefits of Composition Scheme in GST

The following are the advantages of signing up for composite GST:

  • notably lower compliance requirements for filing returns, keeping record books, and sending invoices
  • Tax liability is lower than that of other taxpayers
  • Lower composition GST rates guarantee less tax due, which increases liquidity. As a result, there is greater working capital accessible.

What are the conditions for availing Composition Scheme?

You need to fulfil the following conditions before selecting a composition scheme:

  • If a dealer chooses the composition scheme, they are not eligible to claim any Input Tax Credit.
  • The vendor is unable to provide items like alcohol that are exempt from GST taxes.
  • The taxpayer must pay tax at standard rates for transactions done with the Reverse Charge Mechanism.
  • A taxable person must register all of their enterprises under one PAN under the scheme collectively or choose to opt-out if they operate multiple business sectors under the same PAN, such as food, textiles, and electrical accessories.
  • Any notice or signboard that is publicly displayed in the taxpayer’s place of business must read “composition taxable person.”

How can a taxpayer opt for a composition scheme?

The taxpayer must submit a GST CMP-02 form to the government in order to choose the composition scheme. You may accomplish this online by signing into the GST Portal. A dealer who wishes to use the Composition Scheme must provide this notification at the start of each fiscal year. This is a step-by-step tutorial on using the GST Portal to file CMP-02.

How Should a Composition Dealer Raise Bill?

You cannot issue a tax invoice to a composition dealer. This is a result of the inability of a composition dealer to impose taxes on their clientele. Taxes are something they have to pay for themselves. The merchant must therefore provide a Bill of Supply. Additionally, the dealer must state at the top of the Bill of Supply that they are a “composition taxable person, not eligible to collect tax on supplies.”

What are a composition dealer’s GST rates?

The turnover tax rate that is applicable to composition dealers is shown in this chart:

Composition Scheme

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How should GST payment be made by a composition dealer?

For the purchased goods, an out-of-pocket GST payment is required. The GST that a composition trader must pay consists of the following:

  • GST on the materials purchased.
  • Reverse charge tax
  • tax paid when buying from an unregistered vendor

What are the advantages of the Composition Scheme?

The benefits of signing up for the composition program are as follows:

  • Lower levels of compliance (invoices, bookkeeping, and returns).
  • limited obligation to pay taxes.
  • High liquidity due to reduced tax rates.

disadvantages of the Composition Scheme?

Now let’s look at the drawbacks of signing up for the GST composition scheme:

  • a constrained commercial area. The dealer is not permitted to conduct transactions over state lines.
  • Composition dealers are not eligible for an input tax credit.
  • Alcohol and products purchased through an online portal are examples of non-taxable goods that the taxpayer is not permitted to offer under GST.

How to Apply for GST under the Composition Scheme?

Applying for the composition scheme under GST requires taxpayers to submit form GST CMP-02 via the GST site. Dealers who choose to participate in the scheme must notify the tax department at the start of the following fiscal year if they plan to continue with it.

How to Apply for the Composition Scheme under GST?

This is a detailed how-to for applying under GST for this Composition Scheme.

  • For People Who Are Currently Enrolled as Regular Taxpayers
    • Step 1: Go to the GST portal and sign in to the interface for taxpayers.
    • Step 2: Look for the Services area. Proceed to registration after that.
    • Step 3: To opt for the composition levy, click on Application.
    • Step 4: Complete the form by entering all necessary data and submit it.
  • 2. Those wishing to apply for a new registration must submit a notification using Form GST REG-01.
  • Individuals who are currently willing to shift from being registered as regular dealers under GST must provide notice in Form GST CMP – 02 indicating their intention to use this option. Here, within 90 days (per the new rule) of the start of the specific financial year, they must submit a statement using Form GST ITC-3 with information of ITC relating to stock, semi-finished, or finished items.

Note: Before completing Form GST ITC-03, individuals must file a GST TRAN-1.

Composition Scheme

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Final Word

Small firms with less than the threshold turnover might benefit greatly from the composition plan under the GST. Still, there are certain disadvantages. To decide if the GST composition plan is the best option for their company, dealers must review all of the terms and circumstances. Consulting a GST expert is also a smart move. They will get improved guidance regarding appropriateness and necessary adherence.


Q. When can I apply for registration under the composition scheme in GST?

Ans- If they meet the eligibility requirements, both new and current taxpayers may submit an application for registration under the GST composition scheme. The GST site is where you may submit the online application for the composition levy. While current taxpayers can choose to use GST-CMP-02 to select for composition levy, new taxpayers must complete Form GST REG-01. If someone wants to deviate from standard registration, they must do so prior to the start of the fiscal year.

Q. What is the process for moving from a standard GST registration to a composition scheme?

Ans- You must pay a sum equal to the ITC based on inputs kept in stocks on the day before the switchover in order to switch from regular GST registration to composite GST. Any remaining balance in the credit ledger will expire when you make the payment. Before the start of the fiscal year, you must complete form REG-CMP-02. Log in to the taxpayers’ interface and select Services to switch to the composition scheme on the GST portal. After selecting “application to opt for composition levy” from the services menu, choose registration. Study all the guidelines, complete the form, and send it in.

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