What is the GST composition scheme?
The GST composition scheme lets an eligible supplier pay tax at a fixed rate on turnover instead of the regular rates. Company Suggestion files CMP-08 each quarter and GSTR-4 once a year. The supplier cannot collect GST or take input tax credit.
Who can opt for the scheme?
Section 10 draws two groups. Both look at aggregate turnover of the preceding financial year, on one PAN.
- A supplier of goods: turnover up to ₹1.5 crore. The limit is ₹75 lakh in Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, and Uttarakhand.
- A supplier of services under section 10(2A): turnover up to ₹50 lakh.
- A goods dealer may also supply services up to 10% of the preceding year’s turnover or ₹5 lakh, whichever is higher.
A manufacturer of ice cream, pan masala, tobacco, or aerated water cannot opt. A casual taxable person and a non-resident taxable person cannot. A person who makes inter-state outward supplies of goods cannot. Every registration on the same PAN opts together.
What tax does a composition dealer pay?
The rate is on turnover in the state. It is not the rate on each invoice, and it is not collected from the customer.
| Supplier | Rate |
|---|---|
| Manufacturer, and a trader of goods | 1% (0.5% CGST and 0.5% SGST) |
| Restaurant that does not serve alcohol | 5% (2.5% CGST and 2.5% SGST) |
| Service supplier under section 10(2A) | 6% (3% CGST and 3% SGST) |
Tax on a reverse-charge purchase is paid at the normal rate, not at the composition rate. The quarterly payment is CMP-08, due on the 18th of the month after the quarter. The annual statement is GSTR-4, due on 30 April. Those dates are also on the GST return page.
What can a composition dealer not do?
The scheme is cheaper on paper because it drops the regular return. It also drops credit and the tax invoice.
- No tax invoice, and no collection of GST. The document is a bill of supply that says the person is a composition taxable person.
- No input tax credit. The credit page does not apply to this dealer.
- No GSTR-1 and no GSTR-3B.
- The words “composition taxable person” also go on the signboard at the place of business.
Bill of supply, not a tax invoice. If the customer needs a tax invoice to take credit, this scheme is the wrong choice.
How is the option taken?
A person who is already registered files CMP-02 before the start of the financial year. A new applicant chooses composition in the registration form. The option is not filed in the middle of the year for an existing registration.
Stock held on the day the option starts, on which credit was taken, is dealt with in the intimation the rules require. Leaving the scheme later is a separate form, and it is the point at which regular returns begin again.
Frequently asked questions
Four questions cover GSTR-4, service providers, collection of tax, and the turnover limit.
Is GSTR-4 a quarterly return?
No. The quarterly form is CMP-08, due on the 18th of the month after the quarter. GSTR-4 is the annual statement, due on 30 April of the next financial year. GSTR-9A is not the current annual form.
Can a service provider opt?
Yes, under section 10(2A), when aggregate turnover in the preceding financial year does not exceed ₹50 lakh. The rate is 6%. A goods dealer may also supply services up to 10% of the preceding year’s turnover or ₹5 lakh, whichever is higher.
Can the dealer collect GST from customers?
No. A composition dealer issues a bill of supply, not a tax invoice, and does not collect tax. The bill states that the supplier is a composition taxable person who is not eligible to collect tax.
What is the turnover limit for goods?
₹1.5 crore of aggregate turnover in the preceding financial year. The limit is ₹75 lakh in Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, and Uttarakhand. Turnover of every registration on the same PAN is counted.
Sources
The scheme is section 10 of the CGST Act. The quarterly statement is CMP-08. The annual statement is GSTR-4.