What is Composition Scheme under GST?

  • Blog|GST & Customs|
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  • Last Updated on 1 March, 2022

Need to Introduce GST Composition Scheme:

Composition scheme under the law is for small businesses. This is to bring relief to small businesses so that they need not be burdened with the compliance provisions under the law. Thus, an option has been provided where they can opt to pay a fixed percentage of turnover as fees in lieu of tax and be relieved from the detailed compliance of the provisions of law. Composition levy would be generally opted by persons who are supplying goods & services or both to the end consumer.

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Conditions for Opting for Composition Scheme under GST:

The conditions for opting Composition scheme under GST are as follows:
  1. The person opting for composition levy should be a registered person.
  2. Aggregate turnover of registered person in the preceding Financial Year should not exceed Rs.50 Lakh.
  3. Following class of registered persons would not be entitled to opt for Composition Levy in lieu of Tax payable by them:
    1. Person engaged in supply of services other than supplies referred.Therefore, person engaged in supply of services would not be eligible to opt for composition levy except for person engaged in supply of food for human consumption.
    2. Person making any supply of goods which are not leviable to tax under this Act. At present following goods are not leviable to tax under this Act:
      1. Petroleum Crude
      2. High-Speed Diesel
      3. Motor Spirit
      4. Natural Gas
      5. Aviation Turbine Fuel
      6. Alcohol for Human Consumption
        1. Person making any inter-State outward supplies of goods.
        2. Person making any supply of goods through an electronic commerce operator who is required to collect tax at source under section 52.
        3. Person who is a manufacturer of such goods as may be notified by the Government on the recommendation of the Council.

Rate of Composition Levy in GST:

The rate of Composition Levy in lieu of tax would be prescribed but it would not exceed:
  1. 1% of the turnover in State or turnover in Union Territory in case of a manufacturer
  2. 2.5% of the turnover in State or turnover in Union Territory in case of persons engaged in making supplies. This entry covers the registered persons making supply of food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption. For e.g. Restaurants or Hotels.
  3. 0.5% of the turnover in State or turnover in Union Territory in case of other suppliers.
    However, the above rates are only in respect of CGST Act, Equivalent Rates would be prescribed under SGST/UTGST Act. Thus effective rates would be 2% for manufacturers, 5% for persons making supply of food etc. and 1% in case if other suppliers.

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