Answer By law4u team
1. What Is the GST Composition Scheme? The GST Composition Scheme is a simplified tax regime designed for small taxpayers: Instead of paying regular GST at standard rates, eligible taxpayers pay a fixed percentage of turnover as tax. Compliance is simpler: quarterly returns, minimal record-keeping, and no complex input tax credit calculations. Purpose: Encourage small businesses to register under GST while reducing compliance burden. 2. Eligibility Criteria for Composition Scheme A taxpayer can opt for the Composition Scheme if all conditions below are satisfied: A. Turnover Limit Aggregate turnover must not exceed ₹1.5 crore per financial year. For special category states (like NE states, Himachal Pradesh, Uttarakhand, etc.), the limit is ₹75 lakh. Aggregate turnover includes: All taxable supplies Exempt supplies Exports Inter-state supplies Important: Even if one of these exceeds the threshold, the taxpayer is not eligible. B. Type of Business / Supplies Allowed 1. Manufacturers: Can supply goods under composition scheme. 2. Traders / Dealers: Can sell goods in the same state under composition scheme. 3. Restaurants (not serving alcohol): Eligible for 5% fixed GST under composition scheme. 4. Service providers: Can join only if turnover ≤ ₹50 lakh (as per recent rules). Most small restaurants offering food and services fall under this category. Restrictions on types of business: Service providers exceeding ₹50 lakh turnover cannot opt for composition scheme. Businesses making inter-state outward supplies are not eligible. Businesses supplying through e-commerce platforms (even within the state) are excluded. Casual taxable persons and non-resident taxable persons cannot opt for composition. C. Registration Requirement Even small businesses must register under GST to opt for the Composition Scheme. Registration is mandatory, but compliance is simplified. D. Excluded Businesses Businesses engaged in supplying non-taxable goods only may choose regular scheme if desired. Alcohol for human consumption: Not eligible under composition scheme. Businesses required to collect TCS (Tax Collected at Source) are excluded. 3. Tax Rates Under Composition Scheme The scheme prescribes fixed rates of turnover, replacing normal GST rates: Manufacturers: 1% of turnover Traders / Dealers: 0.5% of turnover Restaurants (not serving alcohol): 5% of turnover Service providers eligible under recent rules: 6% of turnover Note: These are combined CGST + SGST rates, simplifying compliance. 4. Compliance Requirements Even if eligible, businesses must follow simplified rules: 1. Quarterly Filing: CMP-08 return instead of monthly returns. 2. Invoice Requirements: Issue a Bill of Supply, not a tax invoice. 3. No Input Tax Credit (ITC): Cannot claim ITC on purchases. 4. Turnover Limit Monitoring: If turnover exceeds threshold during the year, business must migrate to normal GST immediately. 5. Practical Examples 1. Small Grocery Shop: Turnover: ₹80 lakh Eligible as trader under composition scheme Pays 0.5% of turnover quarterly instead of filing normal GST returns 2. Restaurant in Delhi: Turnover: ₹1 crore Eligible, pays 5% of turnover, issues bill of supply to customers 3. Freelancer / Service Provider: Turnover: ₹40 lakh Eligible for 6% turnover tax Cannot claim input tax credit, but compliance is simpler 6. Benefits of the Scheme Reduced GST compliance and paperwork Fixed tax rates simplify calculations Encourages small businesses to register under GST Quarterly filing reduces administrative burden 7. Key Takeaways Eligibility: Small taxpayers with turnover below thresholds (₹1.5 crore / ₹75 lakh for NE states), certain business types (traders, manufacturers, restaurants, eligible service providers). Not Eligible: Inter-state suppliers, large service providers, alcohol suppliers, e-commerce sellers. Compliance: Quarterly returns, bill of supply issuance, no input tax credit. Tax Rate: Fixed on turnover depending on business type.
