GST registration enables small taxpayers to
either pay the Goods & Service Tax under composition scheme or a regular scheme.
Most of our CAs at LegalWiz.in are receiving some questions on how different it
is to pay tax under the regular scheme via a composition scheme.
Let’s understand it in detail.
GST Composition Scheme
Any registered person under the GST has an
option to choose this tax-paying scheme. It allows the taxpayer to pay the tax
on supplies at a fixed rate even if those supplies are taxed at a different
rate. While this is a lucrative option for the traders, there is a time the
person can apply for the GST composition scheme.
Applying for a GST Composition Scheme
I. A business person can apply for the
composition scheme while availing registration under the GST law. If done so,
the GST composition scheme becomes effective at the same time with GST
II. Applying for the GST composition scheme
while migrating from the earlier laws where it gets effective from the
registration date itself.
III. A business owner can also opt for a GST
composition scheme before the commencement of a financial year for which one
wants to leverage the scheme. In such a case the effective date of the scheme
starts from the next financial year.
While the businesses want to get the most out
of GST composition scheme registration it is often possible that one pays for
the same while not being registered under it. In such a case when the GST is
paid under the composition scheme without being eligible for the same, the
Additional tax payment (as per the regular
scheme) + Penalty Payment (under sec.73 and 74, dealing with a demand under
fraud and non-fraud cases).
Circumstances under which the opportunity for
availing Composition scheme lapses or if the granted permission is called off.
I. The turnover threshold is exceeded, OR
II. When the composition scheme conditions are
not fulfilled by the registered person, OR
III. When the assigning officer believes that
the applicant wanting to benefit from this scheme is not eligible.
Another fundamental question arises in case
the registered person exits from the composition scheme and want to re-enter
In such a case, the registered composition
scheme taxpayer cannot revert to the composition scheme until the financial year
Additional requirements in such cases include;
I. Filing a withdrawal scheme intimation
within the seven days of non-compliance along with the specified conditions, OR
II. Filing of a scheme withdrawal intimation
anytime within the then-current financial year but before effective withdrawal
date (if such withdrawal is wilful).
This composition scheme had a major update in
The composition scheme is available for all
the service providers unlike before when the same was available only for
restaurant service owners. Now, the small businesses with a turnover of over Rs. 50
lakhs can leverage composition scheme where the same conditions as other
taxpayers apply to eligible taxpayers. It also includes availing benefits that
the other taxpayers have under the composition scheme. For this, the tax rate is
6% (3% SGST + 3% CGST).
Composition Scheme Taxpayers – Major
Those businesses looking to benefit from the
composition scheme will need to provide a statement for each quarter (of the
financial year) in Form GST CMP-08. For each quarter, the tax has to be paid by
the 18th of next month by the end of its relevant quarter. Such businesses must
file Form GSTR-4 (for annual return) on or before 30th April post-financial
year-end. This way, small taxpayers have the choice of whether to go for the
regular GST or composition GST scheme.
Tax Rate under GST Composition Scheme
Category of Registered Person
Rate of tax
Manufacturer (other than Pan/pan masala, Ice
cream, and Tobacco)
0.5% CGST + 0.5% SGST = 1% of the turnover
Restaurant (food) service providers
2.5% CGST + 2.5% SGST = 5% of the turnover
3% CGST + 3% SGST = 6% of the turnover
Eligibility to Opt for GST Composition Scheme
A person looking to register under the GST
composition scheme should have an aggregate turnover of up to Rs. 1.5 crores in a
given financial year. Businesses operating from a special category states
[Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura,
Uttarakhand] have the limit of Rs. 75 lakhs.
Do note the following in the above case of
calculating aggregate turnover:
The exclusions while computing the aggregate
turnover includes services rendered through deposit extensions, loans and
advances with interest or discount consideration wherein the interest income is
The recent GST law provisions include
manufacturer or trader registered under Composition Scheme to supply their
services. Such services should not value more than 10% of the turnover (in the
preceding financial year) or Rs. 5 lakhs – the higher value is considered here.
Qualifying for the composition scheme will
help you leverage the unmatched benefits. Few of these includes;
– Need to only deal with lesser compliance
like maintaining books of records, issuing an invoice, return filing, etc.
– Higher tax liquidity at lower rates.
– The tax liability gets limited.
Also, the dealers who successfully register themselves under
the composition scheme will not need to maintain the detailed records.