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Composition scheme is an alternative taxation levy under GST. It is an optional scheme introduced to benefit the small taxpayers. This will save them from the hustle of lengthy tax compliances like maintenance of detailed records, the filing of multiple returns monthly etc. Also, the procedures in terms of the issue of invoices etc are very minimal and simplified.
Under this scheme, a registered taxpayer would be required to pay tax(GST) on their turnover based on the prescribed percentage. The tax rate is comparatively lower than those prescribed for normal taxpayers.
Yes, a supplier having turnover upto Rs 1 Cr in the preceding financial year can opt for the composition tax levy in the current year. For notified categories of states, the limit is Rs 75 lakhs.
The person having a turnover above Rs 1 crore (in general) or above Rs. 75 lakh (for notified states) cannot opt for composition scheme. Apart from this, the following categories of suppliers cannot avail the benefit of composition
| Goods | Tariff Item / Chapter |
|---|---|
| Ice cream including other ice (with or without cocoa) | 2105 00 00 |
| Pan Masala | 2106 90 20 |
| Tobacco and its manufactured substitutes | 24 |
In Goods and Service Tax varied composition rates have been prescribed for different suppliers. The following are the tax rates under composition scheme as amended by Notification Number 1/2018 – Central tax
| Manufacturer | Trader | Food and beverages suppliers (except alcoholic liquor) | Tax rate to be charged on Turnover of | |
| CGST | 0.5% | 0.5% | 2.5% | State |
| SGST / UTGST | 0.5% | 0.5% | 2.5% | Taxable Supplies in State |
| Aggregate Tax | 1% | 1% | 5% | State |
A composite supplier has a different and reduced set of compliance when compared with the normal taxpayer. The same can be better understood through a comparison as under
| Composite Supplier | Normal Supplier | |
|---|---|---|
| Rate of GST | A lower tax of rate up to the maximum of 5% has been prescribed. | A higher rate of tax upto 28% has been notified in this case. |
| Input Tax Credit | Cannot take benefit of ITC on inward supply (purchases) | ITC can be availed to set off the output tax liability |
| Pass on the credit and incidence of the tax | The composite supplier cannot pass on the credit of tax to the recipient. | The normal taxpayer can pass on the credit as well as incidence of taxes payable onto the recipient |
| Annual Return | Annual summary of the transaction is to be filed in form GSTR 9A | Annual summary of the transaction is to be filed in form GSTR 9 |
| Monthly / Quarterly Returns | One quarterly return i.e. GSTR 4 needs to be filed by composition taxpayer | Three monthly returns need to be filed by a normal supplier namely GSTR 1, GSTR 2 & GSTR 3/ 3B |
| Inter-State Supply | Cannot make interstate supply | Can make interstate supply without restrictions. |
All good things come with a price so does Composition scheme. With its manifold benefits composition has the following disadvantages
If a taxpayer falls in any of the below mentioned criteria, it will result in cessation of composition levy for him
Ice Cream, Pan Masala, Tobacco etc
