GST Composition Scheme Rules, Eligibility & Limits | Tally Solutions

Composition Scheme tax rates and Composition scheme limit under GST


What is composition scheme?

Any taxable person whose aggregate turnover in the preceding financial year is less than Rs. 1.5 Crores and less than Rs. 75 lakhs for North Eastern States can opt for a simplified composition scheme where tax will payable at a concessional rate on the turnover in a state without the benefit of Input Tax credit.

Who can opt for Composition Scheme?

  • 1. Businesses dealing only in goods can opt for composition scheme
  • 2. Services providers have been kept outside the scope of this scheme
  • 3. But an exemption has been made in case of those service providers engaged in restaurant services, those taxpayers may also opt for the scheme

All of this holds true if your annual turnover is below Rs. 1.5 Crores or below Rs. 75 lacs in the case of North Eastern States.

Composition Scheme for branches of my businesses

For the person desiring to opt composition scheme under GST it is necessary that all his branches throughout the country opts for the composition scheme as well, to be eligible to opt for composition scheme.

Who are not eligible for Composition Scheme?

  • 1. Businesses engaged in supply of services other than supply of restaurant services
  • 2. An inter-State supplier of goods
  • 3. Businesses supplying goods through an electronic commerce operator
  • 4. Manufacturer of certain notified goods

What is the composition scheme GST rate applicable?

Type of Dealer Composition Scheme GST Rate : CGST Composition Scheme GST Rate : SGST GST Composition Scheme Tax Rate : Total
Manufacturers other than manufacturers of such goods as may be notified by the Government 0.5% 0.5% 1% of the Taxable Turnover (2% earlier)
Restaurants not supplying alcoholic liquor, Caterers, Canteen etc., 2.50% 2.50% 5% of the Taxable Turnover
Other Eligible suppliers 0.5% 0.5% 1% of the Turnover of taxable supplies of goods

Under the Composition scheme, the composition scheme GST rate will be applicable on the taxable supply within a state / Union Territory excluding inward reverse charge mechanism supplies and exempt supplies.

Composition Scheme limit under GST: Aggregate Turnover based

Initially during the outbreak of GST Law (Original) Increment from INR 75 lakhs to 1 Crore (Amendment No. 1) Recommendation for increment from 1 crore to 1.5 Crores and amend the statutory limit to Rs. 2 Crore (Amendment No. 2)
The said limit of Rs.75 lakhs is defined in the GST Act itself with the provision that the same can be increased by the Government to an amount not exceeding Rs. 1 Crore based on the recommendation of the GST Council GST Council vide its 22nd meeting held at New Delhi on 6th October, 2017 made the recommendation to stretch this limit from Rs. 75 lakhs to Rs. 1 crore, to ensure that maximum taxpayers having turnover below Rs. 1 crore opt for the composition scheme In the 23rd GST Council Meeting held at Guwahati it was then decided to increase the threshold limit for determining aggregate turnover to Rs. 1.5 Crore from the previous amended limit of Rs. 1 Crore.   It was also decided to amend the statutory cushioning to Rs. 2 Crore, meaning that, the limit of Rs. 1.5 Crore can be increased by the government, but not exceeding Rs. 2 Crore based on the recommendations of the Council.

Composition Scheme limit under GST for Special Category States

North Eastern States
Arunachal Pradesh Assam Manipur
Meghalaya Mizoram Nagaland
Sikkim Tripura Himachal Pradesh

The GST Council has decided that following Special Category States will have a Rs. 75 Lakhs turnover limit for Composition Levy for CGST and SGST purpose.

Composition Scheme limit under GST: General Restrictions

As part of GST composition scheme, taxpayers must:

  • 1. Not collect GST. GST is to be borne by the taxpayer out of his sale proceeds as composition scheme rates will apply on them
  • 2. Not claim input tax credit of GST on goods purchased or services availed
  • 3. Instead of regular tax invoice must issue bill of supply with declaration stating that "composition taxable person, not eligible to collect tax on supplies"
  • 4. He must on all his boarding’s, representing the firm he manages must display the following characters “composition taxable person” in a prominent place at his principal place of business and at every additional place of business
  • 5. Must pay GST on a reverse charge basis on the goods purchased and services availed from an unregistered person as GST on reverse charge supplies works different from cComposition scheme GST rate
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