Exploring the Composition Scheme under GST: Unveiling Rates, Benefits, and Eligibility

Updated on : Feb. 14, 2023 - noon 17 min read.

What is the Composition Scheme?

The composition scheme is a special set of rules and regulations that allow eligible businesses with annual turnover below INR 1.5 crore to self-assess their GST dues and pay taxes at a fixed rate of their total turnover. This scheme serves to simplify the often complex process of filing GST returns. Businesses choosing this option must also fulfill certain registration requirements, including the filing of monthly returns.

Who Can Avail This Scheme?

The composition scheme in GST is available only for certain types of small businesses, including the manufacturer (excluding ice cream, pan masala and tobacco products), suppliers or traders of goods or any person who provides services but not in relation to restaurant and hotels. Additionally, the qualifying business must have an aggregate turnover not exceeding ₹50 lakhs in the previous financial year. Persons supplying Interstate taxable goods or services are not eligible to opt for this scheme, unless they apply for registration in all states where their supply is taking place. Furthermore, those filing nil returns are also ineligible.

Composition Return and Rates of Tax

Under the composition scheme, the tax rate shall be 1 per cent of turnover from supply of goods. However, persons supplying services will have to pay tax at 6 per cent on the turnover from services rendered by them. Business taxpayers are also required to file a quarterly return in FORM GSTR-4 by 18th day of the month succeeding such quarter before furnishing annual return in FORM GSTR-9A.

Reversal of Input Tax Credit under the GST Composition Scheme

Once a business opts for the GST composition scheme, it is not eligible for the Input Tax Credit (ITC). Kindly note that ITC pertaining to all invoices issued prior to opting for it shall also get reversed. As per the Government’s guidelines, businesses availing the composition scheme need to make any adjustments with regard to reversal of ITC or payment of tax or changes in sales/purchase ledger within ninety days after registering under the composition Scheme.

Compliance Requirements for GST Composition Scheme Dealers

Once a business is registered under the composition scheme, several compliances need to be adhered to: filing returns on quarterly basis, usage and display of Composition Taxpayer GSTIN at the place of business and e-way bills for all interstate movements. Additionally, invoices should also include words “Composition Taxable Person – Not Eligible for Input Tax Credit’ against appropriate entries. Also, it is important to note that once the turnover of a businesses crosses taxable limit of Rs. 1,500 lacs in any financial year or if it decides to opt out from the scheme by itself, then it can not be opted back again into composition scheme.

By Esha Arora

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