Composition Scheme under GST

Composition Scheme under the Goods and Services Tax (GST) is a simple option for small traders, businesses and startups to transform in to GST & switch from unorganized to organized sector. There are about 51 million MSME businesses as per the report of Ministry of Micro, Small and Medium Enterprises who can get benefit of the Composition Scheme by paying GST on turnover at a very nominal rate and get relieved from most of the GST compliances.

Quick highlights:

  • Composition Levy under GST is applicable on all registered persons (whose turnover exceeds 20 lakh and 10 lakh (Specified states- Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura & Himachal Pradesh) and whose turnover doesn’t exceed 1.5 crore and 75 lakh (Specified states)
  • Registered Persons under this Scheme should not :
    • Make Inter-state supply (Selling to other states);
    • Sell through E commerce operator (Like selling through Amazon or Flipkart);
    • Be a non-resident
    • Supply exempted goods (Like vegetables, Salt, Khadi yarn etc.)
  • Registered Persons should be traders or Restaurant /catering service providers or manufacturers of all
    goods except Ice cream, Pan Masala & Tobacco products
  • Special rates are :
    • 5% of turnover for Restaurant Services;
    • 1% for Manufactures and ;
    • 1% for traders & suppliers(Here only taxable turnover);
  • Registered Persons liable to pay tax at Reverse Charge Mechanism are liable to pay taxes under Normal rates and not at special rates
  • Payment of tax as well as returns are to be done Quarterly (Form GSTR-4)
  • One need not collect tax from the buyer and a simple bill of supply may be issued.
  • Only records of total sales turnover & inward supplies are to be maintained (Not invoice wise)
  • In Composition Scheme under GST, a taxable person is out of credit chain and hence no credit on the input supplies can be taken.
  • As per the Revenue Secretary, Ministry of Finance 15.00 lakh dealers have opted for Composition Scheme so far till January 1st 2018.

Steps to opt for Composition Scheme under GST

  • Log in to and select “Application to opt for Composition Scheme” under Services Menu
  • File an intimation electronically under Form GST CMP-01 for persons registered under existing law
  • For person making application for fresh registration under GST, fill PART B of Form GST REG-01

Benefits of Composition Scheme

  • Composition Scheme under GST would increase the sales of the Registered Person as there is no need to collect GST from the customer and thus boosting the Net profit Example: A Restaurant under normal GST charges 5% and Restaurant under Composition Scheme would not charge any GST. Hence Customers prefer the Restaurant which charge less tax & hence the sales would be more under Composition Scheme;
  • Composition Scheme permits intrastate suppliers to buy from other states, Increases working capital and is beneficial to all B2C businesses;
  • Composition Levy under GST makes return filing process easy with just one return for every 3 months (Form GSTR-4) & annual return (Form GSTR-9) & savings in terms of maintaining records and thus reducing compliances considerably.

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