What is GST Composition Scheme I Comeplte Analysis

(Last Updated On: February 20, 2023)

What is GST Composition scheme

The GST Composition Scheme is a simplified tax scheme under the Goods and Services Tax (GST) system in India. It is designed for small businesses and taxpayers to reduce their compliance burden and ease the tax payment process.

Under this scheme, eligible businesses with an annual turnover of up to Rs. 1.5 crore (adjusted to Rs. 75 lakh for certain states) can pay tax at a lower rate based on their turnover. They are also required to file Annual return in GSTR 4 instead of monthly returns, they can pay taxes Quarterly in GST Cmp 8 making the compliance process easier and less time-consuming.

However, businesses opting for the GST Composition Scheme are not allowed to claim input tax credit, which means they cannot set off the tax paid on their purchases against the tax collected on their sales. They are also not allowed to make inter-state sales or supply goods through e-commerce operators.

Overall, the GST Composition Scheme is a beneficial option for small businesses with a low turnover and a limited number of transactions, as it simplifies the tax payment process and reduces compliance costs.

Small taxable persons do not have sufficient knowledge and expertise to comply with the requirements relating to records and accounts. Hence, a simplified ‘composition scheme’ has been designed for them, where they pay tax at a lower flat rate, without availing any input tax credit.

Seperate GST Composition scheme for Goods and Services

Composition scheme for supplier of goods – A simplified composition scheme has been provided for small taxable persons,vide section 10 of CGST Act, w.e.f. 1-7-2017. This scheme is applicable to supplier of goods. However, the scheme also applies to supplier of goods whose supply of services is less than 10% of turnover in preceding financial year or Rs 5 lakhs, whichever is higher.

The turnover limit for composition scheme for supplier of goods is Rs 1.50 crores in the previous financial year.

Composition scheme for suppliers of services – Composition scheme for suppliers of services has been introduced w.e.f. 1-4-2019, vide Notification No 2/2019 Central Tax (Rate) dated 7-3-2019. The scheme is strictly not a composition scheme, as the relevant notification has been issued under section 9 of CGST Act, which indeed is provision for granting exemption. However, practically, the provisions are identical, except for GST rates and threshold limit.

The scheme applies for suppliers of services whose aggregate turnover is upto Rs 50 lakhs in preceding financial year.

No composition scheme for manufacturer of aerated water w.e.f. 1-10-2019 – Composition scheme is not available to manufacturer of aerated water w.e.f. 1-10-2019.

How to Apply GST composition scheme for New Registration

For fresh registrations, it is only necessary to give one intimation when applying for registration under GST Rules on GST Portal. A person who applies for registration can give an option to pay tax under Section 10 in Part B of Form GST REG-01, which will be considered as an intimation to pay tax under the said section. It is not necessary to provide any further intimation. This is as per Rule 3(2) of the CGST Rules, 2017.

In summary, for new GST registrations, it is only necessary to give one intimation while applying for registration by providing the option to pay tax under Section 10 in Part B of Form GST REG-01. No further intimation is required.

Switch to composition scheme

A taxpayer who was previously paying tax under the regular GST scheme may choose to switch to the Composition Scheme at the beginning of a financial year. To do so, they must file an electronic intimation in Form GST CMP-02, duly signed or verified, on the Common Portal before the commencement of the financial year for which the option to pay tax under the Composition Scheme is being exercised.

Additionally, within 60 days from the commencement of the relevant financial year, the taxpayer must furnish a statement in Form GST ITC-3, as per the provisions of Rule 44(4) of the CGST Rules, 2017. This statement is necessary because the taxpayer must reverse the input tax credit of any stock they have on hand as of 31st March.

In summary, a taxpayer can switch from the regular GST scheme to the Composition Scheme at the beginning of a financial year by filing Form GST CMP-02, and must also furnish a statement in Form GST ITC-3 within 60 days of the commencement of the relevant financial year.

Special composition scheme for manufacturers of bricks, fly ash blocks and tiles w.e.f. 1-4-2022

Manufacturers of bricks, fly ash blocks and roofing tiles are not eligible for normal composition scheme and not eligible for small taxable persons exemption of 10/20/40 lakhs per annum w.e.f. 1-4-2022 [Notification No. 10/2019-CT dated 7-3-2019, No. 14/2019-CT dated 7-3-2019 and No. 2/2019-UT dated 7-3-2019 as amended w.e.f. 1-4-2022].

However, they are eligible for special composition scheme w.e.f. 1-4-2022, where they can pay GST @ 6% (CGST – 3% plus SGST/UTGST – 3% or IGST-6%) subject to condition of non-availment of Input Tax Credit. If they manufacturer other products where ITC available, they should reverse proportionate ITC on inputs – Notification Nos. 2/2022-CT (Rate) dated 31-3-2022, 2/2022-IT (Rate) dated 31-3-2022 and 2/2022-UT (Rate) dated 31-3-2022].

If they avail Input Tax Credit, the GST rate will be 12% (CGST – 6% plus SGST/UTGST – 6% or IGST-12%) w.e.f. 1-4-2022 – Notification Nos. 1/2017-CT (Rate), 1/2017-IT (Rate) and 1/2017-UT (Rate) all dated 28-6-2017 amended w.e.f. 1-4-2022.

The goods covered under this special composition scheme are as follows –

1	6815	Fly ash bricks or fly ash aggregate with 90% or more fly ash content; Fly ash blocks
2	6901 00 10	Bricks of fossil meals or similar siliceous earths
3	6904 10 00	Building bricks
4	6905 10 00	Earthen or roofing tiles

Composition Scheme for small service providers having turnover upto Rs. 50 lakhs

A simplified scheme was introduced w.e.f. 1-4-2019 for small service providers (and those who are supplier of goods as well as services exceeding 10% of turnover within State/UT) whose aggregate turnover during previous financial year did not exceed Rs. 50 lakhs. The scheme was introduced vide Notification No. 2/2019-CT(Rate) dated 7-3-2019.

The scheme is not composition scheme as per section 10(1) and 10(2) of CGST Act. The scheme is introduced under section 9(1) of CGST Act, which empowers Government to determine GST Rates.

Regular composition scheme is proposed to be introduced for service providers also, vide section 10(2A) of CGST Act, introduced vide Finance (No. 2) Act, 2019 with effect from 1-1-2020.

Till the new scheme is implemented, the scheme notified under Notification No. 2/2019-CT (Rate) dated 7-3-2019 continues.

The amended section effective from 1-1-2020 provides as follows –

Notwithstanding anything to the contrary contained in this Act, but subject to the provisions of section 9(3) and 9(4) [which provide for reverse charge], a registered person, not eligible to opt to pay tax under section 10(1) and 10(2) of CGST Act, whose aggregate turnover in the preceding financial year did not exceed fifty lakh rupees, may opt to pay, in lieu of the tax payable by him under section 9(1) of CGST Act, an amount of tax calculated at such rate as may be prescribed, but not exceeding 3% of the turnover in State or turnover in Union territory, if he is not–

(a)		engaged in making any supply of goods or services which are not leviable to tax under this Act;
(b)		engaged in making any inter-State outward supplies of goods or services;
(c)		engaged in making any supply of goods or services through an electronic commerce operator who is required to collect tax at source under section 52;
(d)		a manufacturer of such goods or supplier of such services as may be notified by the Government on the recommendations of the Council; and
(e)		a casual taxable person or a non-resident taxable person.

Also refer GST Composition Scheme : Free Study Material

( CA Satbir Singh Contact us Taxheal@gmail.com)

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