In this article, we’re going to take a closer look at who should opt for the composition scheme, eligibility, conditions, and who cannot opt for the composition scheme.
Who should opt for the composition scheme?
The option for the composition scheme depends on various factors and situations that may arise in one’s business which may vary from case to case. However, such a decision depends on the following factors:
- If he is satisfied with the sales he has made in his state (i.e., Intrastate supplies).
- Where it is advantageous for him to forego the input tax credit (ITC) for the inward supplies
- If the majority of the supplies are made to unregistered persons (B2C), i.e., end consumers
- Where he is not willing to supply on ECO (Electronic Commerce Operator)
- Where he’s happy with the sales he has made through his website
- When he’s ready to run his business with minimal GST compliances (GST records, etc.)
Ultimately, the decision on a composition scheme depends on whether a person benefits from it in monetary or other terms and varies from case to case depending on the facts.
What is the eligibility for opting for the Composition Scheme under GST?
The threshold limit for the Composition scheme is as under:
- As per Section 10(1), a registered person whose aggregate turnover in the preceding financial year did not exceed Rs. 1.5 Crores or Rs. 75 lakhs in case of the special category states.
- But if the person is opt-in for a composition levy under section 10(2A) then the threshold of aggregate turnover shall be Rs. 50 lakhs in the preceding financial year.
Then, the taxpayer can avail the benefit of the composition scheme for the current financial year.
What are the conditions and restrictions for the persons opting for the composition levy?
The person exercising the option to pay tax under the composition scheme shall satisfy the below-mentioned conditions:
- He should not be a casual taxable person.
- He should not be a non-residential person.
- He should not pay GST under a reverse charge basis of the goods purchased from an unregistered supplier.
- He should not supply goods outside his state i.e. he can make only sales within his state.
- He is not engaged in the manufacture of notified goods
- He shall issue a Bill of Supply and not a Tax Invoice.
- He shall mention the words “Composition Taxable Person, not eligible to collect tax on supplies” at the top of the Bill of Supply issued.
- He shall print the words “Composition taxable person” on every notice, signboard displayed at his place of business.
Which category of persons cannot opt for composition scheme?
The following persons cannot opt for a composition scheme:
- Manufacturer, trader, or supplier of restaurant or catering services whose aggregate turnover in the preceding financial year has exceeded Rs. 1.5 Crores whereas Rs. 75 Lakhs in the case of specific category states and Rs. 50 Lakhs for the sale of other services.
- Service supplier other than restaurant service over the limit of 10% of turnover in the state in preceding financial year or Rs. 5 Lakhs, whichever is higher.
- Persons engaged in the supply of non-taxable goods.
- The person engaged in any interstate supply of goods cannot opt for a composition scheme. There is a grey area for the person supplying interstate services as they seem to be eligible to opt for a composition.
- Manufacturer of the notified goods
- Casual Taxable Person
- Non – Resident Taxable Person
- Persons engaged in making any supply of goods through an “ECO” who collects TCS u/s 52″. So, as per the law wordings, it can be concluded that one can make supply through an “ECO who is not liable to collect TCS u/s 52”. (ECO means electronic commerce operator).
About The Author: CA Siddhi Shah
I am Chartered Accountant practicing in GST Law, Corporate Law and Income Tax Law.
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