Section 10 of the CGST Act, 2017 provides a composition levy for businesses with an annual turnover of less than Rs. 1.5 crores are currently eligible for the GST composition scheme. Composition Scheme is a straight forward and easy scheme. A taxpayer who chooses the composition system is exempt from keeping detailed records and filing detailed returns.

Limit under GST Composition Scheme

A registered individual whose aggregate turnover in the previous financial year did not exceed 1.5 crore may opt for the Composition Levy Scheme, according to Section 10(1) of the CGST Act, 2017. The special category states limit remains at 75 lakhs, which are as follows:

  • Arunachal Pradesh
  • Uttarakhand
  • Manipur
  • Meghalaya
  • Mizoram
  • Nagaland
  • Sikkim
  • Tripura

Who cannot opt for Composition Scheme?

The following people cannot opt for the scheme:

  • Person engaged in a business of manufacturing pan masala, tobacco or ice cream.
  • Any person engaged in inter-state supplies.
  • A non-resident taxable person.
  • Businesses supplying goods through an e-commerce operator.

Conditions for Opting for Composition Scheme under GST

There are certain conditions which need to be fulfilled for opting Composition scheme under GST which are as follows:

  • The person who chooses to pay the composition levy must be a registered person.
  • The registered person’s total turnover in the previous financial year should not exceed Rs.50 lakh.

The following categories of registered persons would not be able to choose Composition Levy instead of paying tax:

  • Person who renders services other than referred services. Persons engaged in the supply of commodities, with the exception of those engaged in the supply of food for human consumption, will not be able to opt for the composition levy.
  • Any person who makes a supply of products that is not subject to tax under this Act. The following items are currently exempt from tax under this Act.:
    • Petroleum Crude
    • High-Speed Diesel
    • Motor Spirit
    • Natural Gas
    • Aviation Turbine Fuel
    • Alcohol for Human Consumption
  • Person engaged in inter-state supplies of goods.
  • Any person who makes a supply of products through an electronic commerce operator to collect tax at source under Section 52.
  • Any person who is a manufacturer of goods that Central Government may notify on the Council’s recommendation.

Advantages of Composition Scheme

  • A tax payer has to follow lesser compliances
  • Tax liability is limited.
  • Since taxes are at lower rates, there is more liquidity.

Disadvantages of Composition Scheme

  • An enterprise may have a smaller market base because inter-state transactions are prohibited for the dealer.
  • Composition dealers cannot avail Input Tax Credit (ITC).
  • Non-taxable items, such as tobacco, and goods purchased through an e-commerce network, would be unavailable to the taxpayer under GST.

Applicable GST rates for composition dealer

Type of BusinessCGSTSGSTTotal
Manufacturers and Traders of Goods0.5%0.5%1%
Restaurants not serving alcohol2.5%2.5%5%
Other service providers3%3%6%

How GST Payment should be made by a Composition dealer?

GST (Goods and Services Tax) Payment for the materials must be made out of pocket. The GST payment to be made by a composition dealer includes the following:

  • GST on supplies made.
  • Tax on reverse charge.

Returns to be filed by a composition dealer

A dealer must pay tax in a quarterly statement through form CMP-08 by the 18th of the month following the quarter’s end. From F.Y. 2019-20 onwards, a return in form GSTR-4 must be submitted annually by the 30th April of the following fiscal year. GSTR-9A is an annual return that must be filed by December 31st of the following fiscal year. For fiscal years 2017-18 and 2019-20, filing of GSTR-9A was waived. A dealer who is part of the composition scheme is not allowed to keep comprehensive records.

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