The Composition Scheme is a simplified tax compliance framework under the Goods and Services Tax (GST) regime in India. It is designed for small businesses and startups, allowing them to pay a fixed percentage of their turnover as tax, rather than paying tax on each transaction. The Composition Scheme is applicable to businesses with an annual turnover of up to ₹1.5 crores, with some exceptions.
The Composition Scheme rate varies depending on the type of business and the state in which it operates. The applicable GST percentage slab for Composition Scheme is as follows:
| Category of Business | Composition Scheme Rate | HSN/SAC Code | Effective Date of Rate |
|---|---|---|---|
| Manufacturers (other than those notified by the government) | 1% of turnover | Not applicable | 1st July 2017 |
| Suppliers of food and beverages (other than those notified by the government) | 2.5% of turnover | Not applicable | 1st July 2017 |
| Other suppliers (other than those notified by the government) | 0.5% of turnover | Not applicable | 1st July 2017 |
For example, if a manufacturer has a turnover of ₹10 lakhs, the total GST amount payable under the Composition Scheme would be ₹10,000 (1% of ₹10 lakhs). You can use our GST calculator widget to calculate the total GST amount payable based on your business's turnover.
The Composition Scheme is designed to simplify tax compliance for small businesses. However, it has its own set of advantages and disadvantages compared to the regular tax scheme.
Under the regular tax scheme, businesses are required to pay tax on each transaction, which can be complex and time-consuming. The tax rates under the regular scheme vary depending on the type of goods or services supplied, with rates ranging from 0% to 28%.
| Category of Goods/Services | Regular Tax Scheme Rate | Composition Scheme Rate |
|---|---|---|
| Food and beverages | 5% to 18% | 2.5% |
| Manufactured goods | 12% to 28% | 1% |
| Services | 15% to 18% | 0.5% |
As can be seen from the table above, the Composition Scheme rates are generally lower than the regular tax scheme rates. However, businesses under the Composition Scheme are not eligible to claim input tax credit (ITC) on their purchases, which can be a disadvantage.
The Composition Scheme under GST is similar to the composition schemes under the pre-GST tax regime, such as the Value Added Tax (VAT) and the Central Excise Act. However, there are some key differences.
Under the pre-GST tax regime, the composition schemes were applicable only to certain types of businesses, such as small-scale industries and restaurants. The Composition Scheme under GST is applicable to all businesses with an annual turnover of up to ₹1.5 crores, except for those notified by the government.
Additionally, the Composition Scheme under GST has a simpler tax compliance framework compared to the pre-GST tax regime. Businesses under the Composition Scheme are required to file only one return per quarter, compared to the multiple returns required under the pre-GST tax regime.
Q: Can businesses under the Composition Scheme claim ITC on their purchases?
A: No, businesses under the Composition Scheme are not eligible to claim ITC on their purchases.
Q: Can businesses under the Composition Scheme claim ITC on their capital goods purchases?
A: No, businesses under the Composition Scheme are not eligible to claim ITC on their capital goods purchases.
To avoid common billing mistakes associated with the Composition Scheme, businesses should ensure that they:
By following these compliance tips, businesses under the Composition Scheme can avoid penalties and fines, and ensure smooth tax compliance.
A simplified tax compliance framework for small businesses and startups to pay a fixed percentage of their turnover as tax.
₹1.5 crores, with some exceptions.
Depending on the type of business or industry.
No, they pay a fixed percentage of their turnover as tax.
Small businesses and startups.
