Understanding The Composition Scheme Under The Goods And Services Tax

The introduction of Goods and Services Tax in India was much-needed tax reform and it turned out to be an absolute game-changer in the way the taxes are levied. Previously in our country, there were several taxes that were levied like the Excise, Service Tax, VAT, and many more, and this burden was entirely levied on the consumer which in turn led to a cascading effect, or in simpler terms it led to “double-taxation”.

The implementation of the Goods and Services Tax Act removes this cascading effect as it absorbs all such taxes into one.

GST extends to virtually any sector, thus raising the federal revenue. When buying products or services both SGST and CGST are imposed, therefore, any kind misunderstanding/confusion is eliminated beforehand.

What Is The Composition Scheme Under GST?

Composition Scheme under GST is a fast and convenient system for taxpayers under GST. small taxpayers should rid themselves of the cumbersome GST paperwork and pay GST at a predetermined turnover rate. Every taxpayer whose revenue is lesser than Rs. 1.5 Crore may apply for this scheme.

In other words, it is simply an easy way of paying taxes usually offered to small companies and businesses. In comparison to the standard filing of GST, this composition scheme has a couple of more advantages to offer namely lesser tax liability and the decreased compliance and documentation/paperwork. You are responsible for paying taxes at a specified rate of 1 percent to 6 percent of your revenue after your registration is complete for the composition scheme under GST.

Composition Scheme: Who Can Opt For It And Who Cannot?

A taxpayer who has an annual turnover of less than Rs 1.5 crore may apply for the composition scheme under GST. The cap is now Rs 75 for the North-Eastern states and certain others. According to the 2018 CGST (Amendment) Act, a composition dealer may also offer services up to 10 percent of sales, or Rs.5 lakhs, whichever one is greater.

In addition, the GST Council suggested a rise to this threshold for service providers at their 32nd conference held on the 10th of January, 2019. When measuring turnover, account must be taken off the revenue of all the firms listed with the same PAN.

Listed below are the people who cannot apply for the composition scheme under GST

  • Manufacturers of tobacco, ice cream, or pan masala.
  • Non-resident taxable person
  • Casual taxable person
  • An individual making interstate deliveries
  • Companies and businesses that deliver and supply goods via an e-commerce operator.

Threshold For The Composition Scheme

It should be noted that the composition scheme under GST depends on the kind of business you run

Traders And Manufacturers

As a freshly registered company, your annual turnover in the present economic year must not surpass Rs.1.5 Crore. If you’ve already enrolled, then your revenue in the past fiscal year should not surpass Rs.1.5 crore.

The same terms and conditions apply to restaurants that do not serve alcoholic drinks.

Service Providers

Again, as a freshly registered organization/business, your annual turnover in the present economic year shouldn’t surpass Rs.50 lakh. If you’ve already enrolled, then your sales in the previous fiscal year should not surpass Rs.50 crore.

Consequently, in the Special Category States the Rs.1.5 crore ceiling has been further reduced to Rs.75 lakh. Furthermore, on the occasion that the annual turnover in a fiscal year surpasses the predefined composition threshold, then they would have to revert to the standard GST payment method, to abide by the rules of the GST composition regime.


Listed below are some of the benefits one can reap after applying for the composition scheme under GST in India

Compliance Is Made Easy

With fewer rules and regulations to be met when it comes to the compliance part, in terms of maintaining paperwork. Taxpayers are required to file lesser returns and can ignore the need to submit the tax payment receipt.

Decreased Tax Payments

With the revised tax regime, the responsibility of paying taxes is lessened because of the reduced rates.

Enhanced Liquidity

From the monetary viewpoint, lower tax burden through the fixed-rate transforms into higher liquidity rates for the company. You will retain the cash flow stronger with additional liquidity, and that will allow you to manage the business operations efficiently.