All About Composition Dealer

Written by KnowYourGST Team under GST

A taxpayer whose turnover is below Rs 1.5 crore can opt for Composition Scheme. In case of North-Eastern states and Himachal Pradesh, the limit is now Rs 75* lakh.

Before making a decision to choose a composition scheme, it is necessary that The following conditions must be satisfied in order to opt for composition scheme:

  • Any appraiser who deals only with the delivery of goods can choose this system, that is, this provision does not apply to service providers. Providers of food services are excluded.
  • There should not be an interstate supply of goods.
  • Any seller who delivers goods through an e-commerce vendor is excluded from registration as a telephone company. For example: if M / s ABC sells its products through Flipkart or Amazon (Electronic Commerce Operator), then M / s. ABC cannot decide on a composition scheme.
  • Turnover of all businesses registered with the same PAN should be taken into consideration to calculate turnover. A taxpayer cannot choose a composition system for one business but will choose to pay normal taxes for other business. For example, the taxpayer separately registered the following industries: sales of shoes, sales of cell phones, franchisees McDonald's. Here, the compilation scheme will be available for all three industries. He can- not chooses individually separate for all three.

The following conditions must be satisfied in order to opt for composition scheme:

  • No Input Tax Credit can be claimed by a dealer opting for composition scheme
  • The dealer cannot supply GST exempted goods
  • The taxpayer has to pay tax at normal rates for transactions under the Reverse Charge Mechanism. Also, no ITC is available for tax paid under reverse charge for a composition dealer.
  • If a taxable person has different segments of businesses (such as textile, electronic accessories, groceries, etc.) under the same PAN, they must register all such businesses under the scheme collectively or opt out of the scheme.
  • The taxpayer has to mention the words ‘composition taxable person’ on every notice or signboard displayed prominently at their place of business.
  • The taxpayer has to mention the words ‘composition taxable person’ on every bill of supply issued by him.

GST composition scheme for small service providers

As per the CGST (Amendment) Act, 2018, A composition scheme shall be introduced for supplier of services having a turnover of up to Rs 50 lakh. The service providers opting for composition scheme can pay tax at a rate of 6% (CGST 3% + SGST 3%) on their turnover and would not be eligible to avail any input tax. The said scheme shall be applicable across all service providers. The service providers covered under the Composition Scheme shall be required to file 1 annual return and make quarterly payment of GST

Who can-not opt for composition scheme: -

 • Service providers except for restaurant operators (food and soft drinks)
Providers of non-taxable goods
When the person delivers goods between states (Inter state supplies)
Providers who provide goods through an e-commerce operator eligible to collect    TCS
Supplier of tobacco, pan masala, and ice cream

Since the dealer of the COMPOSITION SCHEME cannot pass on the tax credit, he must issue the bill of supply. A Composition Dealer has to issue Bill of Supply. They cannot issue a tax invoice. This is because the tax has to be paid by the dealer out of pocket. A Composition Dealer is not allowed to recover the GST from the customers. Any composition dealer can purchase from other states, there is no restriction in purchasing other from other state, however, he cannot make supply to other state. His supply is restricted to intra-state only.

Secondly, he cannot claim ITC on purchase either Intra state or Inter State and cannot charge GST on supply.

Composition is facility for a dealer upto Rs. 1.5 crore p.a. who is buy and sold merchandise within the state only The cardinal principle of this laws, that any interstate business amount a liability to get a regular registration.

As per the CGST (Amendment) Act, 2018, a composition dealer can also supply services to an extent of ten percent of turnover, or Rs.50 lakhs, whichever is higher. This amendment will be applicable from the 1st of Feb, 2019. Turnover of all businesses registered with the same PAN should be taken into consideration to calculate turnover.

To opt for composition, scheme a taxpayer has to file GST CMP-02 with the government. This intimation should be given at the beginning of every Financial Year by a dealer wanting to opt for Composition Scheme.

A composition dealer cannot issue a tax invoice. This is because a composition dealer cannot charge tax from their customers. They need to pay tax out of their own pocket.

Hence, the dealer has to issue a Bill of Supply. The dealer should also mention “composition taxable person, not eligible to collect tax on supplies” at the top of the Bill of Supply.

Rate of tax on turnover applicable for composition dealers:

Type of Business CGST SGST TOTAL
Manufacturer and Traders (Goods) .5% .5% 1%
Restaurant not serving alcohol 2.5% 2.5% 5%
Other Service Providers 3% 3% 6%


GST Payment has to be made out of pocket for the supplies made.GST PAYMENT:

The GST payment to be made by a composition dealer comprises of the following:

  • GST on supplies made.
  • Tax on reverse charge
  • Tax on purchase from an unregistered dealer*

*Only on the specified categories of goods and services and well as the notified class of registered persons with effect from 1st Feb 2019 but is yet to be notified. Hence, not applicable until then.

RETURN: GSTR-4 (QUARTERLY) AND GSTR-9A (ANNUAL RETURN)

Also, note that a dealer registered under composition scheme is not required to maintain detailed records as required by normal taxpayer.

What is the treatment for input credit availed when transitioning from normal scheme to Composition Scheme?

When switching from normal scheme to composition scheme, the taxpayer shall be liable to pay an amount equal to the credit of input tax in respect of inputs held in stock on the day immediately preceding the date of such switchover. The balance of input tax credit after payment of such amount, if any lying in the credit ledger shall lapse.

Can I opt for Composition Scheme in one year and opt out in next year?

Yes, this is possible. You can opt to switch between the Composition Scheme and the normal scheme based on your turnover. However, you will have to keep in mind that this will affect the way you issue invoices and file your returns.

The declaration of change can be submitted on the GST Portal.

I have many branches. Will composition scheme apply to each of them separately?

If Composition Scheme is opted for all businesses that are associated with this PAN

Is it true that Composition Dealers can sell a product at a lower price than regular dealers?

Yes. Composition dealers cannot charge GST on their sales. So the end consumer pays less money than usual.

Can I opt-in for composition scheme anytime during the year?

No. Before the beginning of every financial year, a registered taxpayer is required to provide a declaration on the GST Portal. This cannot be done anytime during the year.

What will happen if I opt out of composition scheme mid-year?

When a dealer opts out of composition scheme all the normal rules are applicable from the day of opting out.

For example, a composition dealer opts out of composition scheme on 15th October 2017. This means that the dealer will have to file two GSTR-4 for the quarters July – September, and October (15 days). The dealer will also have to file GSTR-1, GSTR-2, and GSTR-3 for the period of October 2017 (sales from 15th October until end of the month)

Author
Posted by Manoj Agarwal under GST

I am CA, you can contact me for resolving all your GST queries. Reach me at manojca12@yahoo.co.in or at 9650700677Contact

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