What is GST Composition Scheme: Eligibility, Tax Rate & Features

The Goods and Services Tax (GST) was implemented in India on July 1, 2017, as a comprehensive indirect tax on the manufacture, sale, and consumption of goods and services throughout the country. Among the various provisions of GST, the Composition Scheme has emerged as a significant and popular aspect. In this article, we will explore what the Composition Scheme in GST is, who is eligible for it, and how businesses can avail or change to this scheme.

What is Composition Scheme in GST?

The Composition Scheme is a special, simplified tax regime under GST designed for small taxpayers to reduce their compliance burden. Instead of paying GST at a standard rate, taxpayers who opt for this scheme pay tax at a fixed percentage of their turnover.

Features

1. Simplified Tax Compliance: The main objective is to simplify tax compliance for small taxpayers, reducing the burden of detailed record-keeping.

2. Reduced Tax Rate: The tax rates under the Composition Scheme are lower than the standard GST rates.

3. Quarterly Return Filing: Taxpayers under this scheme need to file their returns quarterly instead of monthly, making the process less cumbersome.

4. No Input Tax Credit (ITC) Availability: Taxpayers opting for the Composition Scheme cannot claim an input tax credit on their inputs and input services.

5. Intra-State Supply Only: This scheme is applicable only to intra-state supplies, meaning it doesn't cover goods and services sold across state lines.

Who is Eligible for GST Composition Scheme?

The eligibility for the Composition Scheme is determined by specific criteria:

1. Annual Turnover Limit: A business with an annual turnover of up to INR 1.5 crore (in some states, the limit may be INR 75 lakh) can opt for the Composition Scheme. The limit might vary at the government's discretion.

2. Business Type: Manufacturers, traders, and restaurant service providers are typically eligible.

3. No Interstate Sales: Businesses engaged in interstate supply of goods are not eligible.

4. Legal and Compliant Business: The business must be legally registered and in compliance with all regulations and standards.

Tax Rate under GST Composition Scheme

The tax rate under the Composition Scheme varies according to the type of business:

• Manufacturers and Traders: 1% (0.5% CGST + 0.5% SGST)

• Restaurants not serving alcohol: 5% (2.5% CGST + 2.5% SGST)

These rates are applied to the turnover, and the taxes are paid quarterly.

How to Change to Composition Scheme under GST?

Businesses eligible for the Composition Scheme can opt for it by filing a specific form (GST CMP-02) online. Here’s a step-by-step guide:

1. Log in to the GST Portal: Log in to the official GST portal using your credentials.

2. Select ‘Services’: Navigate to 'Services' and then 'Application to Opt for Composition Levy.'

3. Fill in the Details: Complete the required details in the application form GST CMP-02.

4. Submit the Form: Review the information and submit the form.

5. Wait for Approval: The application will be processed, and the change to the Composition Scheme will be effective from the next financial year.

How to Avail Composition Scheme under GST?

To avail of the Composition Scheme, businesses must first ensure that they meet the eligibility criteria. If eligible, they can follow the same online process as outlined above for changing to the Composition Scheme.

Conclusion

The GST Composition Scheme serves as an important provision for small and medium-sized businesses in India, offering reduced tax rates and simplified compliance procedures. By understanding the features, eligibility, tax rates, and the process of how to avail or change to this scheme, businesses can decide if this is the right choice for them. Always consult a tax professional to ensure that the Composition Scheme aligns with your specific business needs and compliance requirements.