Conditions to Keep in Mind While Opting for the GST Composition Scheme
Before you jump into the Composition Scheme for its simplified compliance and lower tax rates, here are some must-know conditions to stay eligible and compliant:
No Input Tax Credit
If you're under the Composition Scheme, forget about claiming ITC on your purchases. That's the trade-off for simplified returns.
GST-Exempt Goods? Not Allowed!
You can't supply goods not taxable under GST like alcohol for human consumption.
Reverse Charge Still Applies
You'll have to pay tax at regular rates for transactions falling under the Reverse Charge Mechanism (RCM). No shortcuts there.
Examples of RCM Transactions:
- Purchase of legal services from an individual lawyer or law firm
- Procurement of goods from an unregistered supplier (like raw materials from small vendors)
- Import of services from foreign vendors
- Hiring of goods transport services by a business (if the transporter is unregistered)
- Services received from a director by a company
- Works contract services provided by a subcontractor to a contractor
In these cases, the recipient of goods or services (you) is responsible for paying the GST directly to the government instead of the supplier.
All-in or All-out Rule
If you run multiple business segments (say textiles, electronics, groceries) under a single PAN, you must opt in for all or none of them. No cherry-picking allowed!
Show It Like You Mean It
Every business location must clearly display the words 'Composition Taxable Person' on signboards and notices.
Label Every Bill
Every bill of supply must carry the label 'Composition Taxable Person' so your buyers know your tax status.
Service Supply – Limited But Allowed
Thanks to the CGST (Amendment) Act, 2018, manufacturers and traders can also offer services – but only up to 10% of their turnover or ₹5 lakhs, whichever is higher.
Let's Stay Connected!
Have questions or need help with GST registration and compliance? We're just a message away!
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Disclaimer:
The information provided in this blog is for general awareness and educational purposes only. It should not be considered professional advice. Readers are advised to consult a qualified Chartered Accountant or tax professional for guidance specific to their situation. While every effort is made to ensure accuracy, the author and the firm assume no responsibility for any errors or omissions.