The Composition Scheme in GST has undergone changes with revised turnover thresholds and compliance guidelines. Staying informed about the latest updates is crucial for businesses opting for this simplified taxation scheme.
GST composition scheme is a tax procedure suitable for firms with not so large sales. It intends to reduce the overall compliance cost through providing lower and much more predictable tax rates. The turnover issue for the composition scheme was established at a certain level, therefore businesses eligible to this scheme can benefit from easy filing and low expenses. Since it is related to GST, it enables smoother management of taxes by small businesses and assists in improving overall efficiency in their cases.
It is much simpler than other tax systems and has less rigid compliance requirements especially for the small businesses. The composition scheme allows eligible businesses, who have crossed the turnover limit set by this scheme, pay taxes at a fixed rate. It minimises the GST filing challenges and also reduces general tax burden for it to be easily afforded by small businesses.
What is the GST Composition Scheme?
The GST Composition Scheme is a special scheme of the GST in which the small businessmen can pay a percentage of turnover per year. It provides a far simpler route of compliance and permits businesses to make tax payments at a lesser and fixed rate reducing the taxes burden immensely.
Ideal Candidates for the Scheme
- Traders and manufacturers with limited turnover
- Restaurants and other small service providers
- Businesses with intra-state operations (those operating within a single state)
This scheme is particularly beneficial for those who do not want to deal with complex filing procedures and higher tax rates.
GST Composition Scheme Turnover Limit
In India, the GST composition scheme is available for small businesses with an annual turnover of up to ₹1.5 crore. This scheme is voluntary and offers an alternative to regular GST compliance. Businesses opting for the composition scheme can pay tax at a fixed rate, which simplifies their tax obligations and reduces compliance efforts.
The scheme is designed to ease the burden on small businesses by offering straightforward tax calculation methods and minimizing paperwork, making it an attractive option for eligible enterprises. However, businesses under the composition scheme are restricted from claiming Input Tax Credit (ITC) on their purchases.
Key Features of GST Composition Scheme
The Goods and Services Tax Composition Scheme pertains to compliance with just one form CMP-08 quarterly and GSTR-4 annually, less GST rates are simple and fixed at 1% for manufacturers and traders, 5% for restaurants and 6% for service providers having a turnover up to ₹50 lakh without input tax credit, thereby rationalising processes and costs.
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Simplified Compliance
- Minimal Returns: Composition dealers are required to remit taxes only through CMP-08 on a quarterly basis and file annual returns through GSTR-4.
- No Detailed Bookkeeping: There are some reliefs in the composition scheme, they don’t have to keep records as much as other businesses do.
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Lower, Fixed Tax Rates
- Manufacturers & Traders: A tax rate of 1% of turnover.
- Restaurants (excluding alcohol): A tax rate of 5% of turnover.
- Service Providers: A tax rate of 6% for persons engaged in providing services having turnover from sales of goods up to ₹ 50 Lakh under section 10(2A).
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No Input Tax Credit (ITC)
- ITC Restrictions: The Composition dealers cannot avail the tax credits on purchases, which hinders the capacity to set off the GST charged on the input/products.
- Impact on Cost Structure: Here the total GST Composition Scheme alters the cost structure since it makes tax easily manageable and also reduces the tax amount that is paid. Despite the fact that businesses can no longer claim ITC, the Relative Fixed Rates are lower and businesses have to prepare fewer documents and have simplified tax returns.
Eligibility Criteria for GST Composition Scheme
GST Composition Scheme is provided for small traders and manufacturers of ceiling limits and conditions regarding the type of transaction. For eligibility, the businesses can have a turnover of up to ₹1.5 crore in a year or ₹75 lakh for the special category states. But for registration, one’s turnover should not exceed ₹50 lakh; services that cross state borders or supplies of goods that are exempted from taxation such as alcohol cannot be made.
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Turnover Limits
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- Basic Turnover Limit: MSMEs having a turnover of up to ₹1.5 crore (₹75 lakh for the special category states) are eligible.
- Service Providers: The scheme is applicable for those service providers who have a turnover up to ₹50 lakh of the previous financial year.
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Ineligible Transactions
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- Prohibited Supplies: At present, composition dealers cannot register for GST and cannot supply interstate, non-taxable goods like alcohol, and cannot sell through e-Commerce platforms.
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How to Opt for the GST Composition Scheme?
GST Composition Scheme is applicable for registration at the time of GST registration as well as at the start of a new financial year. This option is available for new applicants at the time of provisional GST registration through Part B of FORM GST REG-01; while the registered taxpayers can fill in for this option through FORM GST CMP-02. Regarding compliance, goods and service tax returns of CMP-08 for quarterly tax payment and GSTR-4 by the end of the subsequent FY April 30 are submitted.
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Registration Process
To opt for the GST Composition Scheme, businesses must follow a specific registration process.
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- New Applicants: Select the composition scheme while applying for GST registration through the Part B of FORM GST REG-01.
- Existing Taxpayers: Apply for FORM GST CMP-02 at the start of a financial year to convert from the composition scheme.
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Filing Requirements
The GST Composition Scheme has streamlined filing requirements to ease compliance for small businesses.
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- Quarterly Tax Payment: Finish with CMP-08 with amounts due by the 18th of the month after the close of each quarterly period.
- Annual Return: Filing of GSTR-4 must be done by the end of April of the subsequent financial year.
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Sector-Specific Applicability of Composition Scheme
It entails nil rated percentage for certain sections of sectors like small services, manufacturers, and restaurants etc. Every sector applies the different tax rates and qualifications meant to simplify the processes, minimise costs, and promote the companies with the turnover that does not exceed specified limits.
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GST Composition for Service Providers
This Scheme is available for all small service providers whose annual turnover does not exceed ₹50 lakh which is charged at a flat rate of 6%. This is available for some service providers depending on the agreement with the carbon trust so as to ease tax issues hence minimising tax compliance. Still, the scheme has been designed in a way that those involved in providing inter-state services or e-Commerce sales are not allowed.
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GST Composition for Manufacturers
Manufacturers can benefit from the current Composition Scheme that allows a tax rate of 1% of the turnover and easy tax remittance by companies that meet the eligibility criteria of the Scheme. Exempted products like alcohol are also not allowed in this scheme and the qualified manufacturers must be operating in only one state.
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GST Composition for Restaurants and Hotels
Food businesses that do not sell alcohol can take advantage of the Composition Scheme and charge just 5% in taxes for a less complicated process. Hotels if qualified are required to be located within a single state and have turnover thresholds. Affordability is made possible through this option enables a reduction in compliance and maintenance of reasonable tax charges for the small establishments.
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GST Composition for Jewellers, Contractors, and Others
- It applies certain restrictions to the jewellers and civil contractors where their conditions are different from the others. They have to carry out sales only within their own state, so that they fit the requirements of the scheme to confine operations to just one state. It is hoped that this restriction will help to reduce the tax complexity for smaller scale operations in these sectors.
- And for the persons having rental income from commercial complexes and buildings, civil contractors of intra-State Government contracts, etc.? They get eligible to receive simple tax rates under the scheme that tends to reduce their business complexities within the state boundaries.
GST Composition Rules and Conditions
The GST Composition Scheme also composes of rules and compliance conditions to retain the scheme simple for the businesses. These rules refer to Standard Operating Procedures for pan-consistency across business divisions and keep billing and labelling codes to differentiating composition dealers.
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Conditions to Avail the Scheme
Taxpayers registered under GST Composition Scheme needed to apply it over all business units claiming the same PAN similarity. They also need to provide a “Bill of Supply” instead of a tax invoice and hang the notice “Composition Taxable Person” at every business point.
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Forms for GST Composition Scheme
To effectively manage compliance under the GST Composition Scheme, several specific forms must be used:
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- GST CMP-01: These dealers are required to file details with the GST administration for provisional registration under the GST Composition Scheme.
- GST CMP-02: Submitted at the beginning of the financial year to elect into the scheme.
- GST CMP-08: Necessary for filings of taxes made four times continuously every year.
- GST CMP-04: Submitted to opt out of the scheme if existing is necessary
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Turnover Limit
The GST Composition Scheme allows manufacturers and traders with an annual turnover of up to ₹1.5 crore and service providers with an annual turnover up to ₹50 lakh to simpler tax returns.
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Tax Rate
| Category | Tax Rate |
| Manufacturers and Traders | 1% |
| Restaurants | 5% |
| Eligible Service Providers | 6% |
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GST Composition Scheme Bill Format
In the GST Composition Scheme, the seller has to issue a “Bill of Supply” instead of a tax invoice mentioning “Composition Taxable Person” to stick with the laid norms of the scheme. Find the attached partial gst composition format below,
GST Composition Scheme vs. Regular GST Scheme
However, the GST Composition Scheme is slightly easier in terms of tax compliance when compared to the Regular GST Scheme. Compared to the regular GST system where record keeping, multiple returns and an ability to claim Input Tax Credit (ITC) is mandatory, the Composition Scheme has lesser returns and no input tax credit to claim.
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Compliance Differences
While standard GST means filing more returns, maintaining records of sales and purchase, and claiming input tax credit on the acquired goods, it is relatively more complex. However, Composition Scheme has less burden of documentation and filing as compared to regular Scheme where they are required to file CMP-08 only at quarterly intervals and they are not required to maintain track of ITC separately.
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Cost Implications
Further, under the Composition Scheme the rate of tax is comparatively lower (1%, 5%, 6% on turnover of the business depending on the nature of business but it does not allow availing ITC. The absence of ITC in these transactions makes such associated expenses to be higher, hence raising concerns on cost competitiveness for firms that regularly buy goods or services with intent of reselling them.
Conclusion on GST Composition Scheme
In conclusion, It was stated that many advantages accrued to the GST Composition Scheme such as GST compliance, lower rates of tax and fewer records to file for business entities. It is preferred for organisations that have low turnover since it is much easier to manage the GST obligations under this regime. Eligibility criteria of the scheme and the simplicity in its execution relieves small enterprises the hassle of dealing with taxes, allowing them concentration on business expansion.
Our team of experts is here to guide you through the complexities of the new GST regulations. With extensive knowledge of the latest amendments, we can help you in GST filing, appeals, and compliance requirements easily
FAQs on GST Composition Scheme
Can e-commerce sellers opt for the composition scheme?
No, the GST Composition Scheme excludes businesses engaged in inter-state transactions and e-commerce activities.
What happens if turnover exceeds the limit during the year?
If a business’s turnover exceeds the specified limit during the year, it must switch to the regular GST scheme and comply with all the necessary GST requirements from that point forward.
Is there an option to exit the composition scheme voluntarily?
Yes, businesses can exit the composition scheme voluntarily by filing CMP-04. They must also fulfil additional requirements, such as reporting stock in ITC-01.
