Composition Scheme and Eligibility Criteria
Thinking of Simplifying Your GST Compliance? The Composition Scheme Might Be for You.
Businesses with an annual turnover of up to ₹1.5 crore can opt for the Composition Scheme under GST — a hassle-free way to manage taxes with minimal compliance. Thanks to the CGST (Amendment) Act, 2018, even service providers are eligible, provided their service income doesn't exceed 10% of their turnover or ₹5 lakhs, whichever is higher.
Real-World Example
Ravi runs a small restaurant in Pune with an annual turnover of ₹80 lakhs. Under the Composition Scheme, instead of charging GST on each bill and filing multiple monthly returns, Ravi pays a flat tax rate of 5% on his turnover and files just one quarterly return. This saves him both time and money on compliance costs.
Remember: If you operate multiple businesses under the same PAN, the total turnover across all entities is considered.
To enroll, just file GST CMP-02 at the start of each Financial Year. It's a simple move that can save time, effort, and stress for small businesses.
Who Cannot Opt for the GST Composition Scheme?
The GST Composition Scheme offers a simplified path for many small businesses, but here's a quick list of who's ineligible:
1. Manufacturers of Specific Goods
Under Notification No. 14/2019 – Central Tax, the following manufacturers are not eligible for the Composition Scheme:
- Ice cream and other edible ice, whether or not containing cocoa (HSN: 2105 00 00)
- Pan masala (HSN: 2106 90 20)
- Tobacco and manufactured tobacco substitutes (Chapter 24)
2. Suppliers Making Inter-State Supplies
Businesses engaged in inter-state supplies are ineligible for the Composition Scheme, even if their turnover is below the prescribed limit. This restriction is in accordance with the provisions of Section 10 of the CGST Act, 2017.
3. Casual Taxable Persons and Non-Resident Taxable Persons
Individuals or entities registered as casual taxable persons or non-resident taxable persons are not eligible for the Composition Scheme.
4. E-commerce Operators Collecting TCS
Suppliers making sales through e-commerce platforms that collect Tax Collected at Source (TCS) under Section 52 of the CGST Act are excluded from the Composition Scheme.
5. Service Providers (Except Restaurants/Caterers)
Generally, service providers are not eligible for the Composition Scheme. However, restaurants and caterers providing food and beverages are permitted to opt for the scheme, subject to certain conditions.
6. Suppliers of Specified Actionable Claims
Notification No. 50/2023 – Central Tax, dated 29th September 2023, specifies that suppliers of specified actionable claims are not eligible for the Composition Scheme.
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.