There are number of small taxpayers in India who finds it difficult to follow the complicated tax laws compliance requirements completely, because of their small number of transactions or limited number of transactions. There cost of tax managements comes to be more than the tax collected from them, but the problem doesn’t mean that they should be fully exempt from tax payment.
But in order to simplify the tax compliance requirements for such tax payers in order to solve the due moto of collecting tax as well as simplifying the procedure of tax compliance requirements, composition scheme is offered to facilitate the taxpayer to pay a certain amount of tax in lieu of following complicated tax procedures. Under the Goods and Service Tax Act (GST) also the composition scheme has been offered to certain group of taxpayers.
Who is eligible to opt for Composition Scheme
A registered taxpayer whose aggregate turnover in the preceding financial year does not exceed Rs. 50 lakhs will be eligible to opt for composition scheme under GST.
The tax rate under composition scheme under GST is mentioned below:
| Category | Central Rate | State Rate | Total Rate |
| Manufacturer of goods (Other than notified goods) | 1% | 1% | 2% |
| Other Suppliers | 0.5% | 0.5% | 1% |
| Food and other Human consumption articles (except liquor) | 2.5% | 2.5% | 5% |
| Service Provider | NA | NA | NA |
The taxpayer opting for composition scheme will be required to pay taxes on above rates on turnover in state or turnover in the union territory which will include:
- Taxable Supplies
- Exempt Supplies
- Export of goods and services
Persons not eligible to opt for composition scheme: Following taxpayers are not eligible to pay tax under composition scheme
- Suppliers making outward inter-state supply of goods
- Suppliers making supply of goods through electronic commerce operator
- Manufacturers of goods as may be notified by the Government
- Non-resident taxpayer or casual tax payer
- Service Provider other than food and restaurant service
- Supplier of exempt goods
Conditions for availing the benefits of composition scheme under GST
- Composition dealer will not be allowed to collect tax from the receipts of goods on the supplies made by him.
- Composition dealer will not be allowed to tax input tax credit paid on his inward supplies.
Other conditions for composition dealer
- Every composition dealer shall mention the words “composition taxable person, not eligible to collect tax on supplies” at the top of the bill issued by him for every supply.
- The words “Composition Taxable Person” shall be mentioned on sign board or notice board displayed at the principal place of business as well as additional place or places of business.
- Composition scheme can be opted from only from the beginning of the financial year and not from the middle of any financial year except for new registrations and migrations. However it can be noted that the withdrawal from the composition scheme can be made in the middle of the financial year also.
- As the composition dealer can not make inter state supplies, he is not permitted to make the export of goods or services.