Eligibility to opt for Composition Scheme under GST

Composition Scheme is a voluntary and optional scheme with less compliance for taxpayers who are required to take compulsory registration under GST. The Taxpayer can apply for Registration under Composition Scheme on the GST portal. Read about the eligibility to opt for Composition Scheme under GST – who can opt for it and who cannot opt for it.

Who can opt for Composition Scheme under GST?

If the aggregate turnover of business during the financial year does not exceed Rs.1.5 Crore for goods and restaurant services (Rs.75 lacs for special category states) and Rs.50 lacs for other services, it can avail the benefit of composition scheme u/s 10 of the GST Act.

Following points must be noted:

  • Aggregate Turnover is the sum of taxable sales, exempt sales, exports and inter-state sales. It excludes the amount of tax and purchases on which tax is payable under reverse charge.
  • Aggregate Turnover is calculated on all India basis for all the business working on the same PAN.
  • Business having the same PAN but multiple GSTINs for different states can opt for Composition Scheme for one GSTIN and not for others.
  • Special category states include  Arunachal Pradesh, Assam, Jammu & Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh, and Uttarakhand.

Who cannot opt for Composition Scheme under GST?

  • Business making inter-state sale of taxable goods cannot opt for composition scheme. However, business making inter-state sale of taxable services can opt for the composition scheme.
  • Business selling non-taxable goods and non-taxable services.
  • E-commerce suppliers i.e. business selling goods and services through an e-commerce operator.
  • Manufacturer of tobacco, pan-masala, or ice-cream.
  • CTP i.e. Casual Taxable Person – a person who occasionally sells goods or services from the state where he does not have a fixed place of business.
  • NRTP i.e. Non-Resident Taxable Person – a person who occasionally sells goods or services from India and does not have a fixed place of business in India.

When can a seller opt for Composition Scheme?

Check the eligibility of seller of goods or services to opt for Composition Scheme under GST.

Sale of Goods

Taxable Goods Intra-State Sale Eligible
Taxable Goods Inter-State Sale Not Eligible
Non-Taxable Goods Intra-State Sale Not Eligible
Non-Taxable Goods Inter-State Sale Not Eligible

Sale of Services

Taxable Services Intra-State Sale Eligible
Taxable Services Inter-State Sale Eligible
Non-Taxable Services Intra-State Sale Not Eligible
Non-Taxable Services Inter-State Sale Not Eligible

FAQs

Can a person who has opted to pay tax under the composition scheme eligible to avail Input Tax Credit (ITC) on his inward supplies?

No. A taxable person opting to pay tax under the composition scheme is out of the credit chain. He/she cannot claim input tax credit on inward supplies. When he switches over from composition scheme to normal scheme, eligible credit on the date of transition would be allowed.

What are the consequences if a person who is not eligible opts for the composition scheme? 

If a taxable person has paid tax under the composition scheme without being eligible, taxpayer would be liable to penalty. Provisions of section 73 or 74 shall be applicable to determine tax and penalty.

What is the tax rate for taxpayer under Composition Scheme?

a. Trader of Goods = 1% ( CGST 0.5% & SGST 0.5%)
b. Manufacturer of Goods = 2% (CGST 1% & SGST 1%)
c. Restaurant Services = 5% (CGST 2.5% & SGST 2.5%)
d. Other Services = 6% (CGST 3% & SGST 3%

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