September 19, 2019

Composition / Compounding Scheme Under GST

Composition Levy

As Per Section 10 of CGST Act 2017,

  • there is a relaxation for small Goods and service suppliers who is supplying goods and services to the extent of specified limit and
  • fulfill the conditions as imposed  shall enjoy the benefit of composition scheme:

Threshold Limit

The threshold for composition scheme is Rs. 75 Lakhs of aggregate turnover in financial year i.e. Up to Rs. 75.00 Lacs Turnover of , no normal tax but as may be prescribed by proper office of Central / State Government.


Minimum rate of tax prescribed for composition scheme

Composition Scheme Under GST

Under the scheme Goods and service suppliers will pay tax  @ 1% (proposed)

Composition scheme be availed if the taxable person made inter-State supplies

  • No, composition scheme is applicable subject to the condition that the taxable person does not affect interstate
  • As per plain reading  of the Section 8, the composition scheme is applicable  to those goods and service Suppliers who has having turn over up to Rs. 50.00 lakhs and
  • turnover does not inculde inter state trade and commerce and
  •  don’t need input tax credit may opt for the scheme.

Can the customer who buys from a taxable person who is under the composition scheme claim composition tax as input tax credit?

  • No, if a customer buys goods from taxable person (who is opted for composition scheme), then he is not allowed to take composition input tax credit

⇒because a composition scheme supplier cannot issue a tax invoice.

composition tax be collected from customers?

  • No, person opted for composition scheme cannot collecting tax from its customer. It means that a composition
    scheme supplier cannot issue a tax invoice.

Time of Opting the Composition/ Compounding scheme

Any Registered Taxable person who wants to get the benefit of Composition scheme he may opt either

  • at the time of registration it self or
  • after the registration he may opt the scheme from the start of any financial year by giving the information to the GSTN in the manner as may be prescribed.

Treatment of Input Tax credit held on the date of Opting the Composition Scheme

Section 16 subsection (12) of the proposed MGL, said that

  • any registered taxable person, who previously  paying tax under section 7 i.e. normal tax and
  • want to opts to pay tax under Composition Scheme under Section 8,

⇒has to pay an amount equivalent to the input tax credit in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date of such switch over.

Treatment when composition dealer crosses the threshold limit of 50.00 Lacs and become the regular taxable person 

As per section 16(3) of the MGL, he can avail Input Tax Credit in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date from which he becomes
liable to pay tax under section 7.

Composition/ Compounding Scheme Not Applicable to:

  1. having the same PAN as held by the said taxable person, also opt to pay tax under the provisions of this sub-section.
  2. If the proper officer deem fit that the person who is paying tax under this provision is not eligible to pay tax under this provision then he shall in addition to any tax that may be payable by him under other provisions of this Act, be liable to a penalty equivalent to the amount of tax payable as aforesaid:
  3. Provided that no penalty shall be imposed without giving an opportunity of being heard.

Computation of aggregate Turnover to determine eligibility for composition scheme:

As per  Section 2(6).

‘aggregate turnover’ means ‘Value of all supplies (taxable and non-taxable supplies + exempt supplies + Exports) and it excludes Taxes levied under CGST Act, SGST Act and IGST Act, Value of inward supplies + Value of supplies taxable under reverse charge of a person having the same PAN.