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10 most frequently asked questions about composition scheme under GST - Answered

Last Updated on 29-Jun-2017

1. What is composition scheme?

In simple words composition scheme is a scheme under which a dealer could register himself to avail the benefits of simpler taxation system. It is a simpler because you won’t have to worry about the two major components of taxation system
* Input credit : Since you won’t be allowed to get any input credit
* Tax Rate: Since you would have to apply a single tax rate for all the products

2.Do we have to charge different rate for different products?

No, the rate under the composition scheme is a single rate (though three different rates are prescribed for different categories).

3.What is the rate of tax under the composition scheme?

As already discussed there are three different rates, these rates are based on the nature of activities done by the dealer. These are as follows:-

S.No Category Rate of Tax
i Manufacturer, Other than manufacturer of those goods as may be notified by the government One Percent
ii Suppliers of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption) Two and a half percent
iii Any other eligible supplier Half Percent

4. Who is an eligible supplier for the composition scheme?

The following are the important eligibility conditions which are required to be followed in order to avail the benefits under the composition scheme
1. The turnover in the preceding financial year does not exceed INR 75 lakhs.
2. He is not engaged in the supply of services (except for supply of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption)
3. He is not making any supply of goods which are not leviable to tax under this Act.
4. He is not engaged in making any inter-state outward supplies of goods
5. He is not engaged in making any supply of goods through an electronic commerce operator.
6. He not a manufacturer of such goods as may be notified by the government.

5. If a person has different registrations (under the same PAN) in different states, then the turnover limit would be calculated individually for each registration?

No, the turnover limit would be calculated in total for each registration obtained by that person and not according to the registration. In other words this concept is a PAN based concept and not registration based.

6. What will happen if the turnover crosses the threshold limit after getting the registeration ? Will the registration continue for that year?

No, the composition registration will cease to exist from the day the turnover increases the threshold limit.

7. Can a composition dealer collect tax on the supplies made by him?

No, a composition dealer cannot collect the tax on the supplies. Further, he cannot even claim the credit of input services.

8. What are the restrictions on the composition dealer?

The following are the important restrictions on the composition dealer:-

  • He is neither a causal dealer nor a Non resident taxable person
  • The goods held by him on the appointed day (day he chooses to become the composition dealer) have not been purchased in the
  • Inter state
  • From a place outside India
  • Or received from a branch situated outside the state
  • Or from his agent or principal outside the state.
  • Goods have not been purchased from an unregistered supplier and where purchased he pays tax as per the provisions of the act.
  • He is required to pay central tax under reverse charge for the inward supplies of goods or services or both.
  • He shall mention the words “composition taxable person, not eligible to collect tax on supplies” at the top of bill of supply issued by him.
  • He shall mention the words “ composition taxable person” on every notice or signboard displayed at a prominent place of business and at every additional place or places of business.

9.Does he have to file the intimation of his composition scheme every year?

No, he is not required to file fresh intimation every year. Rather once this option is exercised, this will remain valid for as long as the dealer satisfies the conditions as prescribed.

10. Am I eligible to become a composite dealer?

Please visit our detailed analysis of who all can become a composite dealer. This post takes specific examples and explains why or why not can one become a composite dealer

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About the author

Ankit Gupta

Ankit Gupta, CA (Chartered Accountant) has spent considerable time in the industry providing solutions to the business fraternity. His early career saw him working in top level CA firms and US multinationals where he polished his understanding of finance and law. An alumni of Shaheed Bhagat Singh College (Delhi University), he has since spent time working with numerous services companies, traders, retailers and manufacturers. Being a keen follower of technology, he spends considerable time exploring technology solutions for the Indian businesses. Apart from work, he loves spending time with his wife & son.