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GST Composition scheme

GST Composition scheme is a scheme available to small taxpayers who are registered under the Goods and Services Tax (GST) in India. This scheme allows taxpayers to pay taxes at a fixed rate on their total turnover without having to calculate the tax on individual transactions. Under this scheme, taxpayers are required to pay taxes at a flat rate on their turnover without claiming input tax credit. The composition scheme is available to taxpayers with an aggregate turnover of up to Rs. 1.5 crore in the previous financial year. The rate of tax applicable under the composition scheme is 1% for manufacturers, 2.5% for traders and restaurants, and 0.5% for suppliers of services.

Who cannot opt for Composition Scheme

The following people cannot opt for the scheme-

  1. A casual taxable person or a non-resident taxable person
  2. Manufacturer of ice cream, pan masala, or tobacco
  3. A person making inter-state supplies

How can a taxpayer opt for composition scheme?

A taxpayer can opt for a composition scheme by filing Form GST CMP-02 on the GST portal. This form is available on the GST portal and can be filled and submitted online. The taxpayer must also submit a hard copy of the form to the jurisdictional tax officer. The taxpayer must also pay the applicable composition levy and submit any other documents as required.

How Should a Composition Dealer raise bill?

A composition dealer cannot issue a tax invoice. This is because a composition dealer cannot charge tax from their customers. They need to pay tax out of their own pocket. Hence, the dealer has to issue a Bill of Supply. The dealer should also mention “composition taxable person, not eligible to collect tax on supplies”  at the top of the Bill of Supply.

What are the GST rates for a composition dealer?

Following details explains the rate of tax on turnover applicable for composition dealers :

Composition Scheme- Applicable GST Rates

Types of Business




Manufacturer and Traders (Goods)




Restaurants not serving alcohol




Other Service Provider




What are the conditions for availing Composition Scheme?

The following conditions must be satisfied in order to opt for composition schem

  1. No Input Tax Credit can be claimed by a dealer opting for composition scheme
  2. The dealer cannot supply goods not taxable under GST such as alcohol.
  3. The taxpayer has to pay tax at normal rates for transactions under the Reverse Charge Mechanism
  4. If a taxable person has different segments of businesses (such as textile, electronic accessories, groceries, etc.) under the same PAN, they must register all such businesses under the scheme collectively or opt out of the scheme.
  5. The taxpayer has to mention the words ‘composition taxable person’ on every notice or signboard displayed prominently at their place of business.
  6. The taxpayer has to mention the words ‘composition taxable person’ on every bill of supply issued by him.
  7. As per the CGST (Amendment) Act, 2018, a manufacturer or trader can now also supply services to an extent of ten percent of turnover, or Rs.5 lakhs, whichever is higher. This amendment will be applicable from the 1st of Feb, 2019.

What are the returns to be filed by a composition dealer?

A dealer is required to pay tax in a quarterly statement CMP-08 by 18th of the month after the end of the quarter. Also, a return in form GSTR-4 has to be filed annually by 30th April of next financial year from FY 2019-20 onwards. GSTR-9A is an annual return to be filed by 31st December of the next financial year. It was waived off for FY 2017-18 and FY 2019-20. Also, note that a dealer registered under composition scheme is not required to maintain detailed records.

What are the advantages of Composition Scheme?

1. Lower Tax Rate: Under the Composition Scheme, the tax rate is lower as compared to the regular GST rate. This helps businesses to save on their tax costs.

2. Less Paperwork: As businesses opting for the Composition Scheme are not required to maintain detailed records of their transactions, it helps them to reduce paperwork.

3. Easy Compliance: The scheme helps in easy compliance as businesses are required to file only one quarterly return instead of filing multiple returns under the regular GST regime.

4. Lesser Refunds: As businesses are not eligible to claim input tax credit under the Composition Scheme, it helps them to avoid the hassle of filing for refunds.

What are the disadvantages of Composition Scheme?

1. Limited Turnover: Under the composition scheme, your turnover must not exceed Rs. 1.5 crores. Thus, if your turnover exceeds this limit, you will not be eligible for this scheme.

2. Limited Tax Benefits: Under the composition scheme, you are liable to pay a fixed amount of tax irrespective of your turnover. This amount can range from 1-5% depending on the type of goods or services you provide. Thus, you cannot avail of the benefits of reduced tax rate that you would have otherwise enjoyed under the normal GST regime.

3. Limited Input Tax Credit: Under the composition scheme, you are not eligible to avail of input tax credit. Input tax credit is an important part of the

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Q. Which of the following persons can opt for composition scheme?

A. Person making any supply of goods which are not leviable to tax under this Act

B. Person making any inter-State outward supplies of goods and services (except restaurant services)

C. Person effecting supply of goods through an e-commerce operator liable to collect tax at source

D. Person providing restaurant services

Answer D. Person providing restaurant services

Q. What is the threshold limit of turnover in the preceding financial year for opting to pay tax under composition scheme for States other than special category States?

A. 20 lac

B. 10 lacs

C. 50 lacs

D. 1.5 crore

Answer D 1.5 crore

Q. What is the rate applicable under CGST to a registered person being a manufacturer opting to pay taxes under composition scheme?

A. 2.5%

B. 1%

C. 0.5%

D. No composition for manufacturer

Answer C. 0.5%

Q. Can a registered person under composition scheme claim input tax credit?

A. Yes

B. No

C. Input tax credit on inward supply of goods only can be claimed

D. Input tax credit on inward supply of services only can be claimed

Answer B. No

Q. Mr. Sinha a trader in Nagpur has opted for composition scheme of taxation under GST. Determine the rate of total GST payable by him under composition scheme:

A. 0.5% CGST & 0.5% SGST

B. 2.5% CGST & 2.5% UTGST

C. 5% IGST


Answer  A. 0.5% CGST & 0.5% SGST


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