The Composition Scheme is a simplified tax compliance scheme under the Goods and Services Tax (GST) regime in India, which allows small taxpayers to pay tax at a fixed rate. The scheme is designed to reduce the compliance burden on small businesses and to encourage them to come into the formal economy. The Composition Scheme is applicable to taxpayers with an annual turnover of up to ₹1.5 crore, except in special category states where the limit is ₹75 lakh.
The GST rate under the Composition Scheme varies from 1% to 6%, depending on the type of business. For example, manufacturers and traders are required to pay a tax rate of 1%, while restaurants and service providers are required to pay a tax rate of 5%. The Composition Scheme is optional, and taxpayers can choose to opt-out of the scheme if they wish to claim input tax credit or if their turnover exceeds the prescribed limit.
The GST rate under the Composition Scheme is as follows:
| Type of Business | GST Rate (%) | HSN/SAC Code |
|---|---|---|
| Manufacturers | 1 | Any HSN code applicable to the goods manufactured |
| Traders | 1 | Any HSN code applicable to the goods traded |
| Restaurants | 5 | Any SAC code applicable to the services provided |
| Service Providers | 5 | Any SAC code applicable to the services provided |
The Composition Scheme is designed to simplify tax compliance for small taxpayers. Under the regular scheme, taxpayers are required to pay tax on the value of goods or services supplied, and they are also required to claim input tax credit on the goods or services purchased. In contrast, the Composition Scheme requires taxpayers to pay tax at a fixed rate, without the need to claim input tax credit.
The following table compares the tax liability under the Composition Scheme and the regular scheme:
| Particulars | Composition Scheme | Regular Scheme |
|---|---|---|
| Turnover Limit | Up to ₹1.5 crore (except in special category states) | No limit |
| GST Rate | 1% to 6% (depending on the type of business) | 0% to 28% (depending on the type of goods or services) |
| Input Tax Credit | Not allowed | Allowed |
| Compliance Requirements | Simplified returns (GSTR-4) | Regular returns (GSTR-3B and GSTR-1) |
To calculate the GST amount under the Composition Scheme, you can use the following calculator widget:
1% 5% 6% function calculateGst() { var basePrice = document.getElementById("base-price").value; var gstRate = document.getElementById("gst-rate").value; var gstAmount = (basePrice * gstRate) / 100; document.getElementById("gst-amount").innerHTML = "GST Amount: ₹" + gstAmount.toFixed(2); }The Composition Scheme under GST is similar to the Composition Scheme under the pre-GST tax regime, which was applicable to small taxpayers under the Value Added Tax (VAT) and Central Excise laws. However, there are some key differences between the two schemes.
Under the pre-GST tax regime, the Composition Scheme was applicable to small taxpayers with a turnover of up to ₹50 lakh, and the tax rate varied from 1% to 5%, depending on the type of business. In contrast, the Composition Scheme under GST is applicable to small taxpayers with a turnover of up to ₹1.5 crore, and the tax rate varies from 1% to 6%, depending on the type of business.
The following are some frequently asked questions regarding the Composition Scheme:
The turnover limit for the Composition Scheme under GST is up to ₹1.5 crore, except in special category states where the limit is ₹75 lakh.
No, input tax credit is not allowed under the Composition Scheme.
The compliance requirements under the Composition Scheme include filing simplified returns (GSTR-4) on a quarterly basis.
To avoid common billing mistakes associated with the Composition Scheme, follow these compliance tips:
By following these compliance tips, you can avoid common billing mistakes associated with the Composition Scheme and ensure that you are in compliance with the GST laws.
A simplified tax compliance scheme for small taxpayers to pay tax at a fixed rate.
Taxpayers with an annual turnover of up to ₹1.5 crore, except in special category states.
To reduce compliance burden on small businesses and encourage them to come into the formal economy.
A fixed rate of 1% to 5% of the turnover, depending on the type of business.
No, businesses that make interstate supplies, e-commerce operators, and those supplying exempted goods/services are not eligible.
