Composition scheme in the Goods and Services Tax (GST) regime provides for an easier method of calculating tax liability for registered dealers with turnover below the compounding cut-off. This is to reduce the administration cost associated with tax collection with regard to small traders. Taxpayers with annual aggregate turnover not exceeding Rs 75 lakh (Rs 50 lakh for special category states except Uttarakhand) can opt for the composition scheme. The threshold for composition scheme is Rs 75 lakh for Uttarakhand and is yet to be decided for J&K.
A flat 1 per cent tax rate will be charged for traders, 2 per cent for manufacturers and 5 per cent for restaurants under the scheme. A taxpayer availing the composition scheme will be required to file summarised returns on a quarterly basis, instead of three-monthly returns. However, those who opt for the scheme will not be eligible for input tax credit.
There are broadly five categories of traders not eligible for the scheme: those in the services sector, except restaurants; suppliers of goods which are not taxable under the CGST Act/SGST Act/UTGST Act, an inter-state supplier of goods; person supplying goods through an e-commerce operator and manufacturer of certain notified goods.
The option will, however, lapse on the day the aggregate turnover of the registered person exceeds Rs 50 lakh during the financial year. In cases where more than one registered person have the same PAN, all of them have to opt for the composition scheme.
Also, the customer who buys goods from a registered person who is under the composition scheme will not be eligible for composition input tax credit because a composition scheme supplier cannot issue a tax invoice.