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COMPOSITION SCHEME UNDER GST – 2019

Composition Levy Scheme under GST

Composition Levy Scheme in GST - 2019 (Updated)

Composition levy scheme is a very simple, hassle free compliance scheme for small taxpayers. It is a voluntary and optional scheme. The registered person opting to pay tax under the composition scheme needs only to ascertain the aggregate value of outward taxable supplies, and compute the tax thereon at a fixed rate, regardless of the actual rate of tax applicable on the said outward supply.

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Persons Eligible and Not-Eligible for composition scheme

Barring few exceptions, all registered taxable persons whose aggregate turnover has not exceeded Rs. 1.5 crore (Rs. 75 lakhs for special category states except J & K and Uttrakhand) in the financial year are eligible to opt for this scheme. List of taxable persons who are not eligible for the scheme is as below:

  • A casual taxable person i.e. a person who occasionally undertakes supplies in a State or Union Territory where he has no fixed place of business.
  • A non-resident Taxable person i.e. a person who occasionally undertakes supplies but has no fixed place of business or residence in India.
  • A supplier of services except a person engaged in supply of restaurant service.

With effect from 01.04. 2019 small service providers with turnover upto Rs fifty lakhs per annum can opt for composition scheme and pay tax @ 6% [CGST – 3% and SGST/UTGST – 3%] instead of normal tax rate of 18% [CGST – 9% and SGST/UTGST – 9%]

  • A person engaged in providing inter-state supply of goods.
  • A person engaged in supply of non-taxable goods i.e. goods which are not taxable under GST law
  • A person engaged in supply of goods through an Electronic Commerce Operator (ECO) who is required to collect Tax at source under section 52 of the CGST Act.
  • The goods held in stock by him have not
    been purchased from an unregistered
    supplier and where purchased, he pays the tax under the reverse charge mechanism.
  • A person engaged in manufacturing of goods notified under sec 10 (2) (e) of the CGST Act. Following goods have been notified for which composition scheme is not available. 
S.NoClassification( Tariff item/Chapter)Description
121050000Ice cream and other edible ice, whether or not containing cocoa
221069020Pan masala
324Tobacco and manufactured tobacco substitutes
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Benefits of composition scheme

  • Easy compliance as no elaborate accounts and records to be maintained
  • Simple Quarterly Return
  • Quarterly payment of tax

A registered taxable person, whose aggregate turnover does not exceed Rs. 1.5 crores (Rs. 75 lakh for special category States except J & K and Uttrakhand) in the preceding financial year may opt for this scheme.

A taxpayer registered under composition levy scheme has to pay an amount equal to certain fixed percentage of his annual turnover as tax to the government.

This tax has to be paid on quarterly basis.

Composition dealer does not have to maintain elaborate accounts and records.

Instead of two monthly returns (which a normal taxpayer has to file under GST), he has to file a simple quarterly return in FORM GSTR-04.

With effect from 01.04.2019 taxable persons under composition scheme are required to file only one annual return.

However, upon opting for this scheme, taxable person cannotissue taxable invoice under GST law and can neither collectGST from his customers nor can claim Input Tax credit onhis purchases.

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Method to calculate Aggregate Turnover

Aggregate turnover is computed on all India basis for a person having same Permanent Account Number(PAN). It is sum of value of all outward supplies falling in the following four categories:

  • Taxable supplies
  • Exempt supplies
  • Exports of goods or services or both
  • Inter-state supplies.

but excludes

  • the value of inward supplies on which tax is payable by a person on reverse charge basis &
  • taxes including cess paid under GST law.
  • value of supply of the exempt services including services by way of extending deposits, loans or advance.

Rate of Tax under composition scheme

There are three rates prescribed for three different categories of suppliers.

  • An eligible Manufacturer – 1% (0.5% CGST and 0.5% SGST/UTGST) of turnover in a state or Union Territory, as the case may be.
  • Supplier of restaurant Service – 5% (2.5% CGST and 2.5% SGST/UTGST) of turnover in a state or Union Territory, as the case may be.
  • Traders – 1% (0.5% CGST and 0.5% SGST/UTGST) of turnover of taxable supplies of goods in a state or Union Territory, as the case may be.

With effect from 01.04.2019, Traders in goods having turnover upto Rs 1.50 crores per annum can opt for composition scheme of payment of tax @ 1% (CGST – 0.5% plus SGST/UTGST – 0.5%). These traders can supply services upto 10% of their turnover in previous financial year or Rs five lakhs, whichever is higher.

With effect from 01.04. 2019 small service providers with turnover upto Rs fifty lakhs per annum can opt for composition scheme and pay tax @ 6% [CGST – 3% and SGST/UTGST – 3%] instead of normal tax rate of 18% [CGST – 9% and SGST/UTGST – 9%]

Bill of Supply instead of Tax Invoice

A taxable person opting for the scheme has to issue bill of supply as he is not eligible to issue taxable invoice under GST. He has to mention the words “composition taxable person, not eligible to collect tax on supplies” at the top of every bill of supply issued by him.

Conditions & Restrictions under the scheme

A person opting for the scheme has to adhere to the following conditions
  • Issue bill of supply in the prescribed manner
  • Pay all taxes on purchases including taxes to be paid on reverse charge basis
  • Don’t claim input tax credit of purchase
  • Mention the words “composition taxable person” on every notice board or signboard displayed at the prominent place at his every place of business.

Conditions which may render a person in-eligible for the scheme

A person is in-eligible for the scheme, if

  • he wrongly opts for the scheme.
  • his turnover exceeds Rs. One crore (In the case of 9 North East and special category states, namely Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Himachal Pradesh, the limit of turnover is Rs. 75 Lakhs in the preceding financial year).
  • he contravenes eligibility criteria or any of the conditions of the scheme.

Hope you will able to get an deep understanding of Composition Levy Scheme of GST . In Case you need any assistance, you can mail us at cablogindia@gmail.com.

2 Comments

  1. SHAMIT

    Well Explained
    Good Job CA Blog India

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