What is composition scheme ? How to otp composition scheme ? Advantages and disadvantages of Composition Scheme ?

 The Composition Scheme under Goods and Services Tax (GST) is a simplified tax scheme for small taxpayers. It allows eligible businesses to pay GST at a fixed lower rate on their turnover instead of the normal GST rates and with less compliance.

Key Features

Lower Tax Rates

Manufacturers & Traders: 1% of turnover

Restaurants (not serving alcohol): 5%

Service Providers (under composition): 6%

Turnover Limit

Businesses with annual turnover up to ₹1.5 crore can opt for composition scheme.

For special category states, the limit is ₹75 lakh.

Less Compliance

No need to maintain detailed records.

Only quarterly statement and annual return required.

No Input Tax Credit (ITC)

Composition dealers cannot claim ITC.

Cannot collect GST from customers

Tax is paid from their own pocket.

Eligibility for Composition Scheme

A taxpayer can opt for the scheme if:

Turnover is within the prescribed limit.

Business is not engaged in interstate supply.

Not supplying through e-commerce operators like

Amazon or Flipkart.

Not supplying non-taxable goods (like alcohol).

How to Opt for Composition Scheme (Step-by-Step)

Go to the official GST portal

👉 Goods and Services Tax Network

Login with your GSTIN and password.

Go to

Services → Registration → Application to Opt for Composition Levy

Fill the required details and verify the application.

Submit the form using DSC / EVC.

File Form CMP-02 to opt for the scheme.

If switching from regular scheme, also file Form ITC-03 for ITC reversal.

Returns to be Filed by Composition Dealers

CMP-08 → Quarterly statement of tax payment

GSTR-4 → Annual return

Simple Example

If a trader has ₹50,00,000 turnover in a year:

Composition tax = 1% of turnover

₹50,00,000 × 1% = ₹50,000 GST payable

Advantages of Composition Scheme

1. Lower Tax Rate

Tax is paid at a fixed and lower rate compared to normal GST rates.

Type of Business

Tax Rate

Manufacturer & Trader

1%

Restaurants (without alcohol)

5%

Service Providers

6%

This helps small businesses save tax and improve cash flow.

2. Simple Compliance

Under the composition scheme, compliance is easier.

No need to file multiple monthly returns.

Only quarterly statement (CMP-08) and annual return (GSTR-4) are required.

3. Less Record Keeping

Businesses do not need to maintain detailed records of transactions like regular GST taxpayers.

4. Suitable for Small Businesses

Small traders, manufacturers, and restaurants with turnover up to ₹1.5 crore can easily manage their tax liability.

Disadvantages of Composition Scheme

1. No Input Tax Credit (ITC)

Composition dealers cannot claim Input Tax Credit on purchases.

This increases the overall cost of goods.

2. Cannot Collect GST from Customers

Businesses cannot charge GST separately on invoices.

The tax must be paid from their own margin.

3. Interstate Sales Not Allowed

Composition taxpayers cannot make interstate supplies.

They can only sell within the same state.

4. Not Suitable for B2B Businesses

Since buyers cannot claim ITC from composition dealers, many businesses prefer purchasing from regular GST taxpayers.

5. Limited Turnover

If turnover exceeds ₹1.5 crore, the business must switch to the regular GST scheme.

Simple Example

If a trader has ₹40,00,000 turnover:

Composition tax = 1%

₹40,00,000 × 1% = ₹40,000 GST payable

But the trader cannot claim ITC on purchase.

Comments

Post a Comment

Popular posts from this blog

what is E-Invoice ? how to generate E-Invoice ?

Image
E-Invoice (Electronic Invoice) is a system under Goods and Services Tax where a business generates an invoice on its system and then uploads it to the Invoice Registration Portal (IRP). The portal validates the invoice and provides a unique Invoice Reference Number (IRN) and QR Code. 👉 In simple words: E-Invoice = Invoice verified by GST system with IRN and QR code. 2️⃣ E-Invoice Limit (Turnover) E-Invoice is mandatory for businesses whose annual aggregate turnover exceeds ₹5 Crore in any financial year. Turnover E-Invoice Applicability Up to ₹5 Crore Not mandatory Above ₹5 Crore Mandatory 📌 Applicable for B2B transactions, exports, and some B2G transactions. 3️⃣ How to Generate E-Invoice? (Step-by-Step) Step 1 Create invoice in your accounting software / ERP. Step 2 Upload invoice details to IRP (Invoice Registration Portal). Step 3 IRP validates the invoice details with GST database. Step 4 IRP generates: IRN (Invoice Reference Number) Signed QR Code Step 5 Download the E-Invoice w...
Read more

what is Section 31 under CGST act ? why it is important for all taxpayers ?

Image
📘 Section 31 – Tax Invoice under CGST Act, 2017 🔹 Overview Section 31 of the CGST Act, 2017 deals with the issuance of tax invoices, bills of supply, and receipt vouchers. It specifies when, how, and by whom invoices must be issued for supply of goods or services. 🧾 1. Tax Invoice for Supply of Goods ✅ When to Issue? A registered person supplying taxable goods must issue a tax invoice: Before or at the time of removal of goods (if movement is involved) At the time of delivery (if no movement is involved) 📌 Example: If goods are shipped → Invoice before dispatch If goods are handed over directly → Invoice at delivery 💼 2. Tax Invoice for Supply of Services ✅ When to Issue? For services, invoice must be issued: Within 30 days from the date of supply of service For banks/financial institutions/NBFCs → within 45 days 📌 Important: Government may notify special timelines for certain services. 🚫 3. Bill of Supply (Instead of Tax Invoice) A Bill of Supply is issued instead of a tax invo...
Read more

What is Rule 86A under Cgst Act ?

Image
📘 Section 86A of CGST Act – Detailed Note 🔹 1. Introduction Section 86A CGST Rules ka ek important provision hai jo Government ko power deta hai ki wo fraudulent Input Tax Credit (ITC) ko rok sake. Ye rule Rule 86A of CGST Rules, 2017 ke naam se jaana jata hai (Act nahi, Rules ka part hai — ye point exam me important hota hai). 👉 Iska main purpose hai: Fake billing ko rokna Bogus ITC claims control karna Revenue loss prevent karna 🔹 2. Legal Provision (Basic Understanding) Agar kisi GST officer ko lagta hai ki taxpayer ne fraud ya galat tareeke se ITC liya hai, to wo: ➡ Electronic Credit Ledger (ECL) me available ITC ko ➡ Debit (use) karne se restrict kar sakta hai Iska matlab: 👉 Aapka ITC balance dikhega, lekin aap use nahi kar paoge 🔹 3. Conditions for Blocking ITC Officer tab ITC block kar sakta hai jab uske paas “reason to believe” ho ki ITC fraud hai. 📌 Major conditions: Fake Invoice Case Invoice kisi aise supplier se liya gaya jo exist hi nahi karta No Supply of Goods/Serv...
Read more