The Composition Scheme under India's Goods and Services Tax (GST) offers a simplified tax compliance option for small taxpayers. This initiative aims to reduce complex GST procedures, allowing eligible businesses to remit GST at a predetermined turnover rate. Businesses with an annual turnover below Rs. 1.5 crore can opt for this scheme. It is important to note that the Central Board of Indirect Taxes and Customs (CBIC) increased this threshold from Rs. 1 crore to Rs. 1.5 crore.

Eligibility Criteria for the Composition Scheme

Businesses with an annual turnover below Rs. 1.5 crore are generally eligible for the Composition Scheme. However, for North-Eastern states and Himachal Pradesh, this turnover limit is set at Rs. 75 lakh. According to the CGST (Amendment) Act, 2018, a composition dealer is also permitted to provide services, up to either ten percent of their turnover or Rs. 5 lakh, whichever amount is greater. This particular amendment became effective on February 1, 2019. When determining eligibility based on turnover, the total turnover from all businesses registered under the same Permanent Account Number (PAN) must be aggregated.

Businesses Ineligible for the Composition Scheme

Certain categories of individuals and businesses are specifically excluded from opting for this scheme:

• Manufacturers involved in producing ice cream, pan masala, or tobacco products.
• Entities engaged in making inter-state supplies or providing exempt supplies.
• Casual taxable persons or non-resident taxable persons.
• Service providers who facilitate supplies through an e-commerce operator, where the operator is obligated to collect Tax Collected at Source (TCS) under Section 52 of the CGST Act.
• Manufacturers of specific goods or suppliers of designated services as notified by the Government, based on recommendations from the GST Council.

Essential Conditions for Opting into the Composition Scheme

To be eligible for and remain under the Composition Scheme, several conditions must be met:

• Businesses registered under this scheme are not permitted to claim Input Tax Credit (ITC).
• Dealers cannot provide goods that are non-taxable under GST, such as alcoholic beverages.
• For transactions falling under the Reverse Charge Mechanism (RCM), the taxpayer is required to pay tax at standard rates.
• If a taxable entity operates multiple business segments (e.g., textiles, electronics, or groceries) under the same PAN, all such businesses must collectively register under the scheme or none can.
• The term 'composition taxable person' must be clearly displayed on all notices and signboards at the business premises.
• Every bill of supply issued by the taxpayer must include the designation 'composition taxable person'.
• As per the CGST (Amendment) Act, 2018, manufacturers or traders can supply services up to ten percent of their turnover or Rs. 5 lakh, whichever is greater. This provision came into effect on February 1, 2019.

Procedure for Taxpayers to Enroll in the Composition Scheme

Taxpayers wishing to join the Composition Scheme must submit Form GST CMP-02 to the government. This application can be completed online via the official GST Portal. Dealers intending to opt for the scheme need to provide this intimation at the start of each financial year. For detailed instructions, refer to the guide on filing CMP-02 on the GST Portal.

Billing Practices for Composition Dealers

Composition dealers are prohibited from issuing tax invoices because they are not permitted to collect tax from their customers. Instead, they are responsible for paying the tax themselves. Consequently, such dealers must issue a 'Bill of Supply'. It is also mandatory for them to prominently state 'composition taxable person, not eligible to collect tax on supplies' at the top of every Bill of Supply.

GST Rates Under the Composition Scheme

The following table outlines the applicable GST rates for various types of businesses operating under the Composition Scheme:

It is important to note that, as per a notification dated January 1, 2018, the definition of 'turnover' for traders specifically refers to the 'turnover of taxable supplies of goods'.

GST Payment Obligations for Composition Dealers

Composition dealers are required to pay GST from their own funds for the supplies they provide. Their total GST payment typically includes:

• GST levied on the supplies they have made.
• Tax due under the reverse charge mechanism.
• Tax on purchases made from unregistered dealers, applicable only for specified goods, services, and notified registered persons, effective February 1, 2019, once the specific classes are notified.

Required GST Returns for Composition Dealers

Composition dealers have specific GST filing obligations. They must submit a quarterly statement, Form CMP-08, for tax payment by the 18th of the month following the end of each quarter. Additionally, an annual return, Form GSTR-4, must be filed by April 30th of the subsequent financial year, applicable from FY 2019-20 onwards. While GSTR-9A is an annual return usually due by December 31st of the next financial year, it was waived for FY 2017-18 and FY 2019-20. Notably, businesses operating under the composition scheme are not mandated to maintain extensive records.

Key Advantages of the Composition Scheme

Opting for the Composition Scheme offers several benefits for eligible taxpayers:

• Reduced compliance burden, encompassing fewer returns, simplified record-keeping, and streamlined invoice issuance.
• A predictable and generally lower tax liability.
• Enhanced business liquidity due to the application of lower tax rates.

Potential Disadvantages of the Composition Scheme

Despite its advantages, the GST Composition Scheme also presents certain drawbacks:

• Businesses are restricted to intra-state transactions, meaning dealers cannot conduct inter-state supplies.
• Composition dealers are not eligible to claim Input Tax Credit (ITC) on their purchases.
• Taxpayers under this scheme cannot supply non-taxable goods, such as alcohol, nor can they sell goods through an e-commerce platform that requires TCS collection.