GST Composition Scheme for Services

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|Updated on: August 23, 2021

What is GST composition scheme

The formulation of the word ‘composition’ comes from the Latin componere, meaning "put together". It is a feature of tax law system in order to provide a comfort to assessee from complying with the necessity of paying tax on value addition by maintaining detail of ‘inputs’ and ‘outputs’, an alternate is provided to go for a put together scheme.

Objective of composition scheme GST

The GST law provides the option of availing the benefit of Composition Levy to small businesses. The objective of composition scheme is to bring lucidity or clarity for small businesses in understanding about the tax laws and to reduce the compliance cost for the small taxpayers.

Moreover, it is optional and the person opting to pay tax under this scheme can pay tax at a prescribed percentage of his proceeds or turnover every quarter, instead of paying tax at normal rate.

Who are composition dealers

An eligible taxable person can be called as a composition dealer under GST if he works under following restrictions :

  • Not to claim tax credit on the input supplies received by him
  • Shall not be charging GST on the outward supplies made by him, as being a composition dealer he is to pay tax at the rate of 1% in case of trader or 2% in case of manufacturer on the turnover and he is not to claim such tax amount from the recipient by way of charge on the invoice.
  • He is not engaged in the supply of service other than Restaurant service
  • He is not engaged in making any supply of goods which are not leviable to tax under GST Laws.
  • He is not engaged in making any inter-state outward supplies of goods.
  • He is not be engaged in making any supply of goods through an electronic commerce operator.
  • He is not engaged in manufacture of such goods notified by the Government.

GST composition rules: Conditions and Restrictions for composition levy

The conditions and restrictions for composition levy to be called as GST composition rules laid under CGST rules, 2017 are as follows :

  • The person should neither be a casual taxable person nor a non-resident taxable person.
  • The goods held in stock on the appointed day had not been purchased in the course of inter-State trade or commerce or imported from a place outside India or received from his branch situated outside the State or from his agent or principal outside the State,
  • The goods held in stock by him have not been purchased from an unregistered person and where purchased, he pays the tax under reverse charge basis on such supplies received by him.

GST composition limit

The Provisions in the CGST Act says GST composition limit to be a threshold limit which again reverts back to the definition of “Aggregate turnover” which determines the eligibility of taxable person opting composition scheme GST.

  • Definition

The ‘aggregate turnover’ as defined in GST law is the aggregate value of all:

    • taxable supplies (excluding the value of inward supplies on which tax is payable on reverse charge basis),
    • exempt supplies,
    • exports of goods or services or both and
    • inter-State supplies

of persons having the same Permanent Account Number to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess.

  • GST composition scheme turnover limit: And such composition scheme limit under GST would be aggregate turnover during preceding FY does not exceed a sum of Rs. 1.5 crore rupees to discharge its GST liability on a composite or nominal rate and Rs. 75 lacs in case of special category North Eastern states.

GST composition rate

  • Manufacturer: One per cent (both CGSTand SGST) of the turnover in State or turnover in Union territory.
  • Restaurants not serving alcohol: Service provided by Restaurants by way of or as part of any service or in any other manner whatsoever of goods, being food or any other article for human consumption of any drink (other than alcoholic liquor for human consumption) are leviable at the rate of five percent (two and half of CGST and two and half for SGST) under composition scheme.
  • Other suppliers: One per cent of the turnover taxable supplies of goods in State or turnover in Union territory. It should be noted that in this case aggregate turnover shall not be leviable to composition rate only turnover of taxable supplies shall be leviable to composition levy.

GST composition scheme for services

The CGST Act portrays that a taxpayer whose turnover is below Rs 1.5 crore* can opt for Composition Scheme (In case of North-Eastern states and Himachal Pradesh, the limit is now Rs 75* lakh) if he satisfy following conditions:

  • He is not making any interstate outwards supply of goods.
  • He is not a supplier of services other than restaurant related services.
  • He is not engaged in making any supply of goods which are not leviable to tax under this act.
  • Casual taxable person or a non-resident taxable person.
  • He is not engaged in making any supply of goods through an e-commerce operator.

Above provision makes it clear that supplier of services other than restaurant related services can not opt for Composition Scheme under GST.

Know more about GST Composition Scheme

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