GST Composition Scheme

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  • Last Updated on 31 December, 2020

What is Composition Scheme?

As soon as the registration of the business i.e. GSTIN, is obtained, one has to comply with all the procedures laid down in the legislation such as filing of normal GST returns, maintaining accounts and records, etc. which may be a monthly/quarterly exercise depending upon the annual aggregate turnover of the FY. However, for the ease of doing business by the relatively small suppliers, an optional scheme under Section 10 of the GST Act, 2017 has been incorporated wherein the suppliers oscillating between the aggregate turnover of INR 10,00,000/INR 20,00,000 to INR 75,00,000/INR 1 crore respectively (as the case may be) can instead of charging normal tax applicable on the supply can opt for payment of fixed percentage of tax on the total turnover as composition tax. 

Aggregate Turnover Limits for availing the Composition Scheme under GST:

The composition scheme is an optional scheme in the hands of the eligible registered taxable person given under the GST Act, 2017. The aggregate turnover of the preceding financial year needs to be seen. 

1. INR 50 Lakhs was the upper limit: 

 

Initially at the outset of GST era, the aforesaid limit was INR 50,00,000/-. The said limit is defined in the GST Act itself with the provision that the same can be increased by the Government to an amount not exceeding INR 1 Crore based on the recommendation of the GST Council as per proviso to Section 10(1). The GST Act reserves the power in the GST Act i.e. based on the recommendation of GST Council, the Government may increase this limit by way of Notification. 

2. Increment from INR 50 lakhs to 75 lakhs: 

 

In this context, the Central Government vide Notification No. 8/2017- Central Tax dated 27th June, 2017 by evoking the power under the aforesaid section has increased this limit to INR 75,00,000/-. 

3. Recommendation for increment from INR 75 lakhs to 1 crore: 

 

However, as the limit was too small to make it attractive for the taxpayers to avail this scheme i.e. out of 98 lakhs business registered in GST regime only 15.5 lakh(approx..) opted for composition scheme (as on October, 2017), hence, the GST Council vide its 22nd meeting held at New Delhi on 6th October, 2017 has made the recommendation to stretch this limit from INR 75,00,000/- to INR 1 crore, so as to ensure that maximum taxpayers having turnover below INR 1 crore opt for the composition scheme. – Press Information Bureau, Ministry of Finance, Government of India dated 6th October, 2017. – Notification No. 46/2017- Central Tax dated 13th October, 2017.   For detailed information on GST Composition Scheme, buy GST books online 

Aggregate Turnover Limits for availing the Scheme – For Special Category States:

 
The limit for opting Composition Scheme is different for special category States (except Uttarakhand and Jammu & Kashmir) namely (i) Arunachal Pradesh, (ii) Assam, (iii) Manipur, (iv) Meghalaya, (v) Mizoram, (vi) Nagaland, (vii) Sikkim, (viii) Tripura, (ix) Himachal Pradesh. 
 
The limit for the aforesaid States was INR 50,00,000/- as per the aforesaid Notification. However, the aforesaid limit has also been increased from INR 50,00,000/- to INR 75,00,000/-. It must be noted that the turnover threshold for Jammu & Kashmir and Uttarakhand shall be INR 1 crore.
 
In the same line, the Central Government vide Notification No. 2/2017- Union Territory Tax dated 27th June, 2017 by evoking the power under the aforesaid section has increased this limit to INR 75,00,000/-. Similarly, the States Government has/shall also issue the Notification in order to increase the aforesaid limits. Now, both the aforesaid notifications has been amended suitably post recommendations made in 22nd GST Council Meeting.

Rate of tax under Composition Scheme

Under the scheme, the registered person whose aggregate turnover in the preceding financial year did not exceed INR 75,00,000/-/ INR 1 crore (as the case may be), may opt to pay, in lieu of the tax payable by him, an amount calculated at such rate as may be prescribed in the Rules. It must be relevant to note that rates shall be prescribed in Rules but a higher cap on the rates has been introduced in the GST Act, 2017 itself. The rates have been prescribed under Rule 7 of the GST Rules as mentioned below:
 
(a) 1% of the turnover in State or turnover in Union Territory in case of a manufacturers (other than manufacturers of such goods as may be notified by the Government),  
 
(b) 2.5% of the turnover in State or turnover in Union Territory in case of persons engaged in making supplies referred to Paragraph 6(b) of Schedule II. The said paragraph states that the composite supply shall be treated as supply of service where the supply, by way of or as a part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where supply or service is for cash, deferred payment or other valuable consideration.
 
(c) 0.5% of the turnover in State or turnover in Union Territory in case of other supplier eligible for composition levy.
 
For instance, let us take situation (a), the effective rate in case of Intra-state supply will be i.e. 1% CGST and 1% SGST = 2%. There cannot be any effective rate in case of Inter-state supply under the Composition Scheme, as the composition scheme is not available when the inter-state supply is made by the supplier. Therefore, the composition rate cannot be applied in case of inter-state supplies. 
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