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Provision of Composition Scheme under GST


After introducing the GST Act initially, the composition scheme had a limit of Rs. 1 crore, i.e. registration under the composition scheme can only be opted by business with an annual turnover of less than Rs. 1 crore. The GST composition scheme turnover limit for northeastern states and hill states such as Sikkim and Himachal Pradesh was kept at lower Rs. 75 lakhs annually than other states in India.

At the 32nd GST Council Meeting held on 10th January 2019, the composition scheme’s limit for states increased to Rs. 1.5 crore, i.e. businesses/individuals with an annual turnover of up to Rs. 1.5 crore can opt for registration under the GST composition scheme; this is applicable from 1st April 2019 onwards. North Eastern States have a lower turnover limit for GST composition scheme that will apply to hill states such as Assam, Sikkim or Himachal Pradesh & Jammu & Kashmir. This change to the existing composition project will come into effect from 1st April 2019 onwards. The composition scheme does not apply to the following:

  • A non-resident taxable person or a natural taxable person
  • Businesses/persons supplying goods through an e-commerce portal operator collect tax at source (u/s 52).
  • Businesses/persons occupied in inter-state supply of goods or services
  • A person engaged in manufacturer of ice cream and other edible ice with/without cocoa as an additive
  • A person engaged in manufacturer of tobacco products, tobacco substitutes and pan masala
  • Businesses/persons who have purchased goods from the unrecorded supplier (allowed if GST is paid on such goods on a converse charge basis)
  • Suppliers associated with the supply of goods are exempt under GST Act.

Eligible taxpayers for opting-in for Composition Scheme

  • The average taxpayers having aggregate turnover below Rs.1.5 Crore in the previous financial year, who doesn’t want to avail ITC facility,
  • The average taxpayers having aggregate turnover below Rs.75 lakh in the last financial year situated in the following states:
    Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Tripura, Nagaland, Uttarakhand and Sikkim
  • However, Assam and Himachal Pradesh were the two states whose turnover limit for registration under the composition scheme was Rs.1.5 crores
  • The average taxpayers supply services and mixed supplies with aggregate turnover of last financial year below Rs.50 lakhs.

However, it must be noted that aggregated turnover must be considered for the scheme’s applicability, and for taxability, turnover in the state must be considered.

The difference between the two is turnover in the state to determine the number of services that can be supplied; the amount of interest/discount earned on account of extending deposits accumulated shall not be considered while it is to be included in calculating aggregate turnover. Turnover in the state/UT is only relevant for determining the amount of tax that has to be paid by the composition taxpayer. Also, this is important to determine the amount up to which services can be rendered by a manufacturer/trader opting u/s 10(1).

The following table explains the rate of tax on turnover applicable for composition dealers:

Nature of business CGST SGST Total
Manufacturing & Traders (Goods) 0.5% 0.5% 1.0%.
Restaurant not serving alcohol 2.5% 2.5% 5.0%
Other service providers 3% 3% 6%

However, a general practice, the surplus amount is invested with banks, a problem of incompetent attracted as advancing money where the consideration received as interest/discount considered as supply of service, because of which majority of persons comes under the incapable standard who were otherwise eligible to opt for the scheme.

Also, specific manufacturers/traders have to provide certain services necessary and incidental for their primary supply. Even those persons were coming under the ineligibility criteria as they were assisting.

Therefore relaxation for the above two issues was provided by adding a provision. A description was inserted wherein it was stated that a person might supply services (other than restaurant/caterer services as these are already allowed for composition scheme) up to 10% of turnover in the state or UT in the preceding FY or Rs. 50 lakhs, whichever is higher.

At AJSH, we assist our clients in dealing with various GST matters (GST registration, GST advisory, GST assessments, filing of GST returns, claiming refund & GST audits) by providing them adequate support and guidance from our end. If you have any questions or would like to know more about the composition scheme under GST, kindly contact us.


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