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Composition Scheme under GST

Rajesh Kumar 
Updated on 20 June 2017

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Under the proposed GST regime, a small supplier of goods can opt to pay the GST levy under composition scheme. Important provisions regarding composition levy is as follows;

1. Composition levy is an optional levy. Eligible supplier can opt for composition levy as per provision of Section 10 of the CGST Bill.

2. Only those suppliers are eligible whose aggregate turnover in the preceding financial year was less than 75 lakhs. Aggregate turnover means [Section 2(6) of the bill] aggregate value of all supplies (inclusive of taxable, exempt, export, services, inter-state etc.) of persons having same PAN number computed on all India basis.

3. Composition scheme is available to supplier of goods only. Only one type of service provider namely persons supplying food or beverages can opt for composition scheme. Rate of composite levy for them is 2.5% of the turnover.

4. For supplier of goods two rates have been proposed. Manufacturers are required to pay composition levy @1%. Other suppliers are required to pay composition levy @0.5%.

5. Persons opting for composition levy are not allowed to supply goods in inter-state trade. Further they are not allowed to supply goods through electronic commerce operator.

6. Persons opting for composition levy are not allowed to collect any tax from recipient of supplies made by him. Further, they are not allowed to take any credit on input supplies.

7. Procedure for opting composition levy has been prescribed in the draft Rules. The supplier has to apply for registration, and composition scheme can be opted at the time of registration. Intimation for option of composition levy can be filed electronically through form GST CMP-01. Option to pay composition levy shall be effective from the beginning of the financial year. He shall mention the words “composition taxable person, not eligible to collect tax on supplies” at the top of the bill of supply issued by him.

8. As per the draft Rules, a person cannot opt for composition levy if he has purchased goods in course of inter-state trade, or imported goods, or purchased goods from unregistered dealers. A person opting for composition levy shall pay tax under sub-section (3) or sub-section (4) of section 9 on inward supply of goods or services or both received from un-registered persons.

9. The registered person who intends to withdraw from the composition scheme shall, before the date of such withdrawal, file an application in FORM GST CMP-04, duly signed, electronically on the Common Portal.

The composition levy does protect small suppliers from hassles from fulfilling various procedural requirements of the GST laws. The scheme is beneficial to small suppliers of goods, or persons providing service in form of supply of food/beverages who are engaged in local sales directly to consumers.


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