Composition Levy under GST: Everything You Need to Know

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Composition levy under GST is an alternative levying tax on small taxpayers. The composition levy aims to ease filing tax returns and reduce compliance costs for small taxpayers while bringing them into the tax net. The advantages of opting for a composition scheme are lesser compliance in maintaining books of account, invoicing, filing returns, paying tax, etc. At the same time, the disadvantages are:

  • The non-availability of Input Tax Credit (ITC).
  • Limited territory of business.
  • Restriction on supply through e-commerce portals.

Who is eligible to opt to pay tax under the Composition levy?

Any registered persons whose aggregate turnover does not exceed Rs.150 Lakhs during the previous Financial Year can opt for a Composition scheme. While determining the aggregate turnover, exempt supply of services by way of extending deposits, loans, or advances where consideration is by way of interest or discount will not be considered.

Who is not eligible to opt to pay tax under the composition scheme even if the turnover does not exceed Rs.150 Lakhs?

  1. Persons engaged in making the supply of goods or services which nor leviable to tax under this Act, e.g., HSD, petrol, alcohol for human consumption etc.,
  2. Persons engaged in making outward supply of goods or services to inter-state
  3. Persons engaged in the supply of goods or services through electronic commerce operator to whom TCS is applicable.
  4. Persons engaged in manufacturing ice creams, edible ice, pan masala, aerated water, tobacco and its substitutes, fly ash bricks, bricks of fossil meals, building bricks, and earthen or roofing tiles.
  5. Casual taxable person and a non-resident taxable person:

In the case of distinct persons under GST where multiple GST registration with the same Permanent Account Number (PAN), all such distinct persons shall opt under the Composition scheme.

Related Read: Threshold Limit Calculation for GST Registration (Other than Composition Scheme)

When can this option of composition scheme be opted for?  

The Composition scheme can be opted before the beginning of the financial year by filing intimation in CMP-02 and statement in ITC-03 within 60 days from the commencement of the financial year.

The effective date of the Composition option shall be from the beginning of the financial year and, in case of new registration, only after granting of registration.

Where a registered person opts for a Composition scheme, he shall not collect tax from the receipts and is not eligible to tax input tax credit.

Taxpayers registered under the Composition Scheme are not supposed to issue tax invoices but issue a bill of supply. Though they are required to maintain proper books accounts, Logo recommends keeping proper books of accounts for a better understanding of the business and also knowing the position of the inventory from time to time and amounts payables to the supplier. For this Composition, taxpayers can use CaptainBiz to issue the Bill of Supply and monitor the stock. CaptainBiz is a cloud and mobile-based billing software GSTN recommends for small taxpayers.

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CMA Lakshmana Rao Udandrao Co-Founder
Practicing Cost Accountant, Management Consultant, GST Expert, Trainer, Faculty, Author, Insolvency Resolution Professional, Industry Expert, SAP Consultant

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