GST Guidance on GST composition scheme

GST Guidance on GST composition scheme

GST Composition Scheme

Particulars Supply of services [Section 10(2A)] Supply of goods [Section 10(1)]

Applicability of the GST Composition Scheme.

  Whose aggregate turnover in the preceding FY did not exceed Fifty lakhs

Ø  Registered persons who are not eligible as mentioned in the left column.

Ø  The value of services (other than restaurant services) should not exceed 10 percent of turnover in the state or UT in the preceding FY or R d Fifty Lakhs, whichever is higher.

Ø  A registered person whose aggregate turnover did not exceed Rs. 1.5 Crores (Rs. 75 Lakhs for special category states) in the preceding financial year may opt for composition.


Conditions on GST Composition Scheme.

Ø  N. A

Ø  Not engaged in the supply of goods or services which are not liveable to tax under this Act.

Ø  Neither a casual taxable person not a non-resident taxable person.

Ø  Not engaged in making any inter-state supply

Ø  Not engaged in making any supply through e-com operator who is required to collect tax at source

Ø  Not a manufacturer of goods as may be notified by the Govt.

Ø  Should not be engaged in the supply of services (see exception above).

Ø  Not a manufacturer of goods as may be notified by the Govt.

Ø  He is neither a casual taxable person nor a non-resident taxable person.

Ø  Not engaged in the supply of goods which are not liveable to tax

Ø  Not engaged in making any inter-state outward supply of goods

Ø  Not engaged in making any supply of goods through an e-com operator who is required to collect tax at source.

Rate of levy on GST Composition Scheme.

Ø  6% of turnover in the State or UT. Ø  Manufacturers – 1% of turnover in state or UT.

Ø  Other suppliers – 1% of the turnover of taxable supplies in-state or UT

Ø  Persons engaged in making supplies referred to in clause (b) of paragraph 6 of Schedule II (restaurant services) – 5% of turnover in state or UT.

Reverse charge GST Composition Scheme Ø  Reverse charge as mentioned in section  9 (3) and (4) is applicable to GST Composition Scheme Ø  Reverse charge as mentioned in section 9 (3) and (4) is applicable to composition dealer.

Return of GST and Payment on composition scheme : 

Persons in the composition scheme are expected to file quarterly returns and to pay GST on a quarterly basis. All other regular dealers are expected to file monthly returns and to make monthly payments as well.

The due date for the return and also for the payment of the GST is 18 days from the end of the quarter. All quarterly returns shall be submitted in the form GSTR-4 and the particulars of the input supplies shall be available in the form GSTR-4A.

Drawbacks of the GST Composition Scheme.

Although the composition of the GST is beneficial, there are a few drawbacks to the scheme that you should be informed of before registration.

  • No input tax credit: B2B companies are not required to pay input tax credits on the output liability. Even the purchaser of such goods would not earn any tax credit, resulting in price distortion and cascading. As a buyer registered as a regular taxpayer does not earn any credit when buying from an individual registered under the composition scheme, this results in a loss of business. Eventually, such buyers may stop buying from a taxpayer under the scheme.
  • No tax collection: There under the scheme, taxpayers are not entitled to recover composition tax from their customers, since they are not allowed to collect a tax invoice.
  • Restricted geography/reach for business: Business owners are geographically restricted, as the composition of the GST does not cover inter-state transactions.

GST composition scheme not allowed:

As a taxpayer, you can opt for a scheme for the composition of the GST, ensuring that your annual turnover falls within the limits stated. It is important to remember that the GST composition cap requires turnover for all companies registered under a specific PAN. In general, the composite scheme may be used by small producers, traders, and service providers

  • Truck operator
  • Repair shop
  • Machine operator
  • Artisan and more
  • Small manufacturing unit
  • Trade/manufacturing sector unit
  • Food-service unit
  • Service sector unit
  • Fruit and vegetable vendor
  • Shopkeeper

Tax rates for the GST composition scheme: After registration for the composition of the GST, your company turnover is subject to a fixed tax rate. Current rates shall be as follows:

  • For service providers: 6 percent GST, split into 3 percent CGST, and 3 percent SGST.
  • For goods producers and traders: 1% GST, split as 0.5% CGST and 0.5% SGST.
  • For non-alcohol restaurants: 5% GST, split as 2.5 percent CGST and 2.5 percent SGST.

What is the scheme for the composition of benefits in GST?

The key advantages of the GST composition scheme are:

  • Reduction of tax payments: With the latest tax rate framework, the liability for taxpayers has declined.
  • Lower standards for compliance: With much fewer requirements to be followed when it comes to maintaining records, taxpayers now need to file less returns and can eliminate some need to submit tax invoices.
  • Significantly raise in liquidity: From a financial point of view, reduced tax liability through a fixed rate translates into higher levels of liquidity for the company. With far more liquidity, you can better manage your cash flow, which will help you keep your functions effectively.

Kind of form applicable for GST composition scheme

Is a composition dealer collect the customer’s tax?

No, a composition dealer cannot collect taxes from his clients. He’s expected to pay the same for himself.

Will a composition dealer liable for an Input Tax Credit (ITC)?

The Composition Dealer cannot use the Input Tax Credit on GST transactions.

If a company has a number of branches, can the composition scheme refer to each branch separately?

No no. The composition scheme would not extend to each branch separately.

Can an interstate dealer opt for a composition scheme?

An inter-state dealer cannot opt for a composition scheme since it is intended exclusively for the intra-state supply of products.

Can a dealer opt for a composition scheme at any point throughout the year?

No the composition dealer cannot opt for the composition scheme at any point during the year. A declaration must be made on the GST website before the start of each financial year.

Is a composition dealer willing to accomplish accurate records?

A composition dealer does not need to keep comprehensive records like a regular taxpayer is expected to maintain.

How does a composition dealer make a bill?

A Composition Dealer may issue a Supply Bill. It should note “Composition of a taxable individual who is not entitled to collect tax on supplies” at the top of the Supply Bill.


QUES. It is envisaged that many customers may not provide the GSTIN to the Banks in time. In such cases, the Banks/insurers would report the supply as B-to-C transactions in the returns filed by it. Later, in case the customer reverts to the GSTIN, how should this amendment be reflected?

ANS.  A transaction once reported as B2C cannot be amended later to add GSTIN and convert the transaction as B2B.

QUES. Is the condition to make payment for the value of supply plus the GST thereon required to be complied with by the recipient to claim the input tax credit where supplies for services are made between distinct persons?

ANS.  No, this condition is not required to be complied with by the recipient. As per the proviso to sub-rule (1) of Rule 37 of the CGST Rules, 2017 the value of supplies made without consideration as specified in paragraph 2 of Schedule I of the CGST Act, 2017 shall be deemed to have been paid for the purposes of the second proviso to sub-section (2) of Section 16 of the CGST Act, 2017.

QUES. For supply of taxable services, can a digitally signed invoice be issued in duplicate, with the original being marked as “Original” and the duplicate copy being marked as “Duplicate”?

ANS.  In the context of digitally signed documents, the requirement of issuing original and duplicate invoices does not arise. A digitally signed invoice can be retained by the supplier and also be made available to the recipient.

Key Due Dates:

  • Return of Outward Supplies for December by Regular and Casual Suppliers having turnover more than 1.5 crore is 11/01/2019.
  • ISD return for the month of December is 13/01/2019.
  • GSTR return Summary return date is 20th January 2019.

Concluding : 

While some flexibilities are available with regard to enforcement, records management, and payment of the tax for individuals who have opted for membership, the enrolled person should take the utmost care and examine it properly before continuing with the scheme. Prohibitions on the input tax credit, inter-state supply, etc. can have a direct effect on the business model and profitability of the organisation. It should also weigh other considerations, such as the nature of its customers – whether B2B or retail, the nature of the goods, the ratio of taxable and exempted supplies, before finalising its decision.

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