The GST Composition Scheme is ideal for small and medium businesses in India. This scheme allows a business with a turnover of less than Rs 1.5 crore in a year to pay GST at a fixed rate of the turnover.
However, there are quite a few taxpayers that cannot opt for the composition scheme, and this scheme certainly comes with its list of advantages and disadvantages. In this article, we will find out all about the GST Composition Scheme.
Who can opt for the Composition Scheme?
Any manufacturer or trader having a turnover of less than Rs 1.5 crore in a financial year can opt for the composition scheme. This limit will be applicable to restaurants (not serving alcohol).
However, the threshold limit is Rs 75 lakh for North-eastern states and Himachal Pradesh.
Service providers having a turnover of less than Rs 50 lakh can avail the GST composition scheme.
[Suggested read: A Detailed Guide on the Goods & Services Tax]
Who cannot avail the composition scheme?
The following businesses cannot opt for the composition scheme:
- Manufacturers of ice-cream, pan masala, or tobacco
- Businesses making inter-state supplies
- Businesses registered as a casual taxable person or a non-resident taxable person
- Businesses supplying goods through an e-commerce operator
Checkout Razorpay’s GST Verification Tool, a powerful resource designed to streamline GST number verification and search for Central and State GST jurisdiction.
Conditions for opting for the composition scheme
Any business opting for the GST composition scheme must satisfy the following conditions:
- Cannot supply GST exempted goods
- Cannot claim credit for taxes paid on purchases
- Normal GST rates to apply for transactions under the reverse charge mechanism
- Mention ‘Composition Taxable Person’ on every notice, bills of supply (invoice issued by a composite dealer)
- Can provide services to an extent of 10% of turnover or Rs 5 lakh, whichever is higher, if you are a manufacturer or trader
- All business verticals registered under the same PAN must opt for this scheme or otherwise, should opt-out entirely
GST rates applicable to a composition dealer
The GST rates that apply to composition dealers are quite different from the ones that apply to non-composition dealers. Have a look at the table below to know more:
|Type of business||CGST||SGST||Total|
|Manufacturers and traders (goods)||0.5%||0.5%||1.0%|
|Restaurants not serving alcohol||2.5%||2.5%||5.0%|
|Other service providers||3.0%||3.0%||6.0%|
Simply use an online GST calculator to figure out various components of GST and the amount due for your goods and services.
How to opt for the GST composition scheme?
You can visit the GST portal and file form GST CMP-02 with the government in order to register your business under this scheme. You will have to file this form at the beginning of the financial year for which the option is to be exercised.
Remember, you will not be able to choose this option in the middle of the financial year.
GST returns to be filed by a composite dealer
A composite dealer has to file a quarterly return CMP-08 by 18th of the month following the quarter. In addition to this, the dealer has to file an annual return GSTR-4 by 30th April of the next year.
[Recommended read: How to File GST Returns – Forms & Due Dates]
What are the merits of the composition scheme?
Following are the merits of opting for the GST composition scheme:
- Businesses enjoy higher liquidity since a lower amount of GST has to be paid to the government
- Businesses enjoy lesser compliance (maintaining records, filing returns, issuance of invoices, and so on) under this scheme. This also provides dealers with ample time to focus on core business activities
- Businesses can enjoy a much lesser tax liability when they opt for this scheme. The biggest advantage of this is for startups and smaller businesses that often see cash crunches on a regular basis. Most startups that do not see a turnover of over Rs 1.5 crore are less likely to have extra cash that can go into taxes. With the composition scheme, the government has ensured that more startups can flourish in a market that has become friendlier towards their plight
What are the demerits of the composition scheme?
As is the case with most things, one must also consider the disadvantages of any plan before praising it wholeheartedly. Some of the demerits of the composition scheme are:
- Businesses registered under this scheme have a limited territory to perform their operations since inter-state supplied are not allowed
- Businesses cannot supply exempted goods. For instance, a coconut trader cannot avail this scheme because coconuts, fresh or dried, whether or not shelled or peeled fall under exempted goods
- Businesses cannot claim the input tax credit (taxes paid on purchases) if they opt for this scheme
How can you make your bill of supply easily without any mistakes?
Using Razorpay Invoices can help you achieve this! Razorpay Invoices works on an intuitive dashboard that helps you create GST-compliant invoices quite easily.
You must enter your HSN or SAC number into the invoice while preparing it, and the system will automatically apply the correct rate to your invoice. If you are operating under the composition scheme, then you must select the same from the drop-down menu of options when you create an invoice. This will change the invoice to a bill of supply.
Once the correct document is made, you can share the same with your customers through email or through SMS. They can then make the payments as soon as they receive it, making the whole process quite quick and easy for everyone.
The link that you will share with your customers will be a unique one, generated just for your bill of supply.
Make all your transactions incredibly simple with Razorpay!