Facts To Know About Composition Levy Under GST

Prakash Matre
Prakash Matre at June 02, 2023

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There would be a substantial amount of cost and expertise needed in complying with GST. While the big guys will easily adapt to it, it’s the smaller ones which will feel the heat for lacking either of the above.

Composition scheme, under GST, is just an extension of the current scheme under VAT and is aimed at helping the startups and SMB’s, who may initially find it hard to comply with the GST provisions.

In the Composition Scheme, a taxpayer will be required to file summarized quarterly returns instead of three monthly returns [as for a normal business].

Key Features of the Composition Scheme


Businesses, where the annual turnover does not exceed 75 lakhs, can only avail the composition scheme.

Tax Rate:

The tax under the composition scheme will approximately range between (1-5)%but not less than 1% of the annual turnover.

Voluntarily Scheme:

Composition Scheme is to be requested and availed at one’s own will, provided the parameters are met. Businesses registered under the VAT Composition Scheme will also have to enroll in the Voluntary Scheme to avail the benefits.

Bill of supply instead of normal invoice:

The Composite Tax payers would have to issue a Bill of Supply to their buyers and not the normal invoice.

Only Applies to intrastate supplies:

The businesses which operate within a state are only eligible for Composition Scheme. Interstate transactions will attract regular GST.

No Input Tax Credit:

Section 16 of the GST Act prohibits Input Tax Credit to those goods and services for which Composition Tax has been paid [against Section 8]

Softened compliance:

Unlike the normal GST returns [thrice a month], the Composite Tax payers would only have to file one quarterly return leading to a lesser compliance cost.

Strict penal provisions:

Since the composition scheme is a kind of tax subsidy at the first place, there are stringent parameters to be met including a fresh registration each year, to let the government know of your eligibility. Failing to comply the norms can lead to penalties, equal to the amount of tax along with the tax itself. There should be utmost clarity about the eligibility criteria of the Composition Scheme.

Registration for Composition Scheme

A registered person whether migrated or a new registration who could not opt for composition scheme shall be given the option to avail it till 30th September 2017 and such a registered person shall be permitted to avail the benefit of composition scheme with effect from 1st October 2017.

The switch from Composition Scheme to the normal GST is allowed during a financial year but not vice versa during the same FY.

The application for the same will have to be filed on or before 31st march of the previous year.

Returns under Composition Scheme

GSTR-4 is the form for the filing the returns for the Composite Tax Payers to be furnished quarterly within eighteen days of the relevant quarter.

The first return under the composition scheme will apply from the date registered till the end of the first quarter.

Who is excluded from the Composition Scheme?

The following persons are not eligible to apply for the Composite Scheme:

  • Manufacturers and supplier of non-taxable goods
  • Businesses which crossed an annual turnover of 75 lakhs in the previous financial year
  • Service providers other than restaurant services
  • Inter State suppliers
  • E commerce and related businesses
  • Non-resident registered suppliers
  • Manufacturers of ice-cream and edible ice, pan masala, tobacco and its substitutes.

All the businesses operating against a single PAN must register collectively under the scheme or not opt at all. Partial enrollment is not allowed under a single PAN.

Transitional provisions

Transiting to normal GST can make you avail the Credit of Input, from the day immediately preceding to the date from which opt to be taxed as a regular tax payer.

However, the following conditions apply to start getting an Input Credit:

  • Those input or goods are meant for making taxable outward supplies under GST provisions
  • Only the eligible goods registered under the GST rules are entitled for input credit.
  • One needs to prove his eligibility under the previous regime and demonstrate that he was unable able to claim due to being a Composite Taxpayer.
  • A valid legal document of input tax credit, not more than 12 months before the appointed date would be needed.

The consolidated pros and cons of the Composition Scheme have been mentioned below to enable you to take an informative decision:

  • Benefits:Reduced Tax Liability | Ease of doing business | Limited Compliance
  • Drawbacks: Limited Intra State Business | No Input tax Credit | Tax burden on yourself | Non-compliance penalties

How is the turnover calculated under Composition Scheme?

All supplies made including freebies, exempted services, exported services and taxable services under a PAN [excluding supplies on RCM] cumulatively form the aggregate turnover under the composition scheme.

When can the composition scheme be opted for?

GST CMP-02 is the form to be used for requesting to opt for the composition scheme, either

  • At the time of registering under GST or
  • At the beginning of the financial year

Which form is to be used and by when for paying taxes under the composition scheme?

The tax under this scheme is to be paid quarterly on or before the 18th of the succeeding month by using the form GSTR-4. The form captures the turnover information and inward supplies of goods and services.

Is withdrawal from the composition scheme allowed?

Yes, the GST Act allows the withdrawal from the composition scheme using the form GST CMP-04. This withdrawal will apply to all businesses operating nationally under a single PAN and no partial withdrawal is allowed.

Is reverse charge applicable for the composite scheme holders?

Yes, the reverse charge does apply to the persons under composition scheme.

Should you still be confused about the Composition Scheme and want to consult an expert, the proficient team at Masters India, a GST Suvidha Provider is here to help. autoTax from Masters India, a GST Suvidha Provider is a fully automated GST Software, which along with other numerous functionalities also ensures that you always stay on top of it and be in the good books of the government by maintaining a high GST compliance rating. To know more on how can you put your GST Return Filing on an auto-pilot, please connect with Masters India at info@mastersindia.co  | 9773706840.

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