Glossary
What is the composition scheme?
A simpler GST option for small businesses: a flat rate on turnover, no credit, no tax on the bill.
Updated
In short
The composition scheme lets small GST-registered businesses pay tax at a flat rate on turnover instead of charging GST on each invoice, without input tax credit. SimpleERP has no composition mode and suits regular GST registrations.
The composition scheme is an optional GST scheme for small businesses with aggregate turnover up to ₹1.5 crore, or ₹75 lakh in some special category states. They pay tax at a flat rate on turnover, commonly 1% for traders and manufacturers, cannot charge GST to buyers or claim input tax credit, issue bills of supply, and cannot make inter-state sales. Service providers have a separate option up to ₹50 lakh.
Composition scheme: a worked example
Suppose Sri Murugan Traders, a customer of Lakshmi Steel Furnitures, were a composition trader with quarterly sales of ₹12,00,000. It would pay composition tax of ₹12,000 at 1%, half CGST and half SGST, through form CMP-08, whatever its purchases. It could not claim the GST on the racks it buys from Lakshmi Steel, so that tax becomes part of its cost. Rates change, so confirm the rate for your goods with your CA or the GST portal before you rely on it.
| Regular scheme | Composition scheme | |
|---|---|---|
| Tax on the bill | Yes, by rate | No, bill of supply |
| Input tax credit | Yes | No |
| Inter-state sales | Allowed | Not allowed |
| Returns | GSTR-1 and GSTR-3B | CMP-08 quarterly, GSTR-4 yearly |
Who cannot opt for the composition scheme?
Businesses above the turnover limit, those making inter-state outward supplies, manufacturers of notified goods such as tobacco products and ice cream, casual and non-resident taxable persons, and most service providers outside the separate ₹50 lakh option. If any branch under the same PAN is ineligible, all of them are.
FAQ
Questions, answered
Is the composition scheme good for my business?
It suits businesses that sell mostly to consumers, buy mostly from local suppliers and have thin paperwork. It suits poorly if your buyers are registered businesses, because they cannot claim credit on your sales, or if you have large purchases with GST you could otherwise claim.
What returns does a composition dealer file?
A quarterly statement, CMP-08, to pay the tax, due by the 18th of the month after the quarter, and an annual return, GSTR-4, due by 30 June after the year ends. There is no GSTR-1 or GSTR-3B.
Can a composition dealer sell to another state?
Not outward supplies of goods or services across a state border. A composition dealer can buy from other states, but those purchases carry IGST that cannot be claimed as credit. Inter-state selling means moving to the regular scheme.
How do I leave the composition scheme?
By filing an intimation on the GST portal to opt out, or automatically when your turnover crosses the limit, after which you must move within the time allowed. You can then claim credit on stock held on the day you switch, through a declaration.
Related
Keep reading
Bill of supply
The document issued instead of a tax invoice when no GST is charged.
Read moreInput tax credit (ITC)
The GST paid on purchases that a business sets off against the GST it collects on sales.
Read moreGST
India's tax on the supply of goods and services, charged at each stage with credit for inputs.
Read more
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