Composition scheme in GST

By: Yashvi Parikh - 19th March, 2021

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To simplify the GST compliance for small businesses, CGST Act provides for "Composition Levy". Composition scheme is a simple and easy scheme under GST for small business owners. Small taxpayers can take advantage of this scheme. In this scheme, dealers are liable to pay GST at a fixed prescribed rate of turnover/sales.

Who can opt for Composition Scheme?
Type of Dealer Aggregate turnover during preceding year Aggregate turnover during current year
Manufacturers & Traders Upto INR 1.50 Crores Upto INR 1.50 Crores
Restaurants not serving alcohol Upto INR 1.50 Crores Upto INR 1.50 Crores
Service providers Upto INR 50 Lacs Upto INR 50 Lacs

For excess turnover, dealers will be liable to pay GST at regular rate.

Aggregate Turnover: For the purpose of computation of threshold limit, aggregate turnover, i.e., turnover for all businesses registered under the same PAN, shall be considered. It is sum of value of all outward supplies falling in the following four categories:

  • Taxable supplies
  • Exempt supplies
  • Exports of goods or services or both
  • Inter-state supplies

However, it doesn't include the value of inward supplies on which tax is payable by a person on a reverse charge basis and taxes including cess paid under GST law.

Who cannot opt for composition scheme under GST?
  • Businesses with inter-State supplies
  • Exempt supplies
  • Services other than restaurant related services
  • Casual Taxable Person
  • Non-resident Taxable Person
  • Manufacturers of Ice cream, Pan masala, Tobacco and Ecommerce operators
Composition Scheme Rules

Following are the compliances required in case of composition scheme under GST:

  • An input tax credit cannot be claimed
  • Tax is required to be paid at normal rates in case of transactions carried out under the reverse charge mechanism
  • Different businesses are to be collectively registered under the composition scheme if applicable.
  • At the place of business, the words 'composition taxable person' are to be compulsorily displayed on every notice or a signboard.
  • The words 'composition taxable person' must be cited on every bill of supply that is issued.
  • A registered person supplying goods can also provide services worth up to Rs 5 lakh under the scheme.
GST returns filing under composition scheme

Form GSTR-4: To be filed quarterly by the 18th of the month following each quarter.

Form GSTR-9A: Annual return to be filed by the 31st of December of the next financial year.

What are the Tax rates applicable?

Applicable GST Rates under GST Composition Scheme

Type of Business CGST SGST Total GST
Manufacturers and traders of goods 0.5% 0.5% 1%
Restaurants (not serving alcohol) 2.5% 2.5% 5%
Service Providers 3% 3% 6%
What are the Benefits of GST Composition Scheme for Small Businesses?
  • Reduced tax payments: As GST under composition scheme is paid at much lower rates as compared to GST rates applicable for regular dealers.
  • Lower compliance requirements: Every regular dealer is required to file GSTR-3B on monthly basis and GSTR-1 on monthly/quarterly basis. However, every composition dealer is required to file GSTR-4 on quarterly basis.
  • Increased liquidity: As payment of GST is to be made at a reduced rate, it increases the liquidity of taxpayer.
  • Less paperwork: As the GST composition scheme eliminates a lot of red tape and paperwork it works well for a small business.

When a taxpayer opts out this GST scheme, he will be charged normal tax rates and will have to follow normal GST rules from the day he opted out.


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