TLDR;
Alright, folks! This session is all about understanding the composition scheme under GST, a simpler, optional method for small taxpayers. We'll cover eligibility based on turnover, special provisions for certain states, how to calculate aggregate turnover, GST rates under the scheme, restrictions, and the process for registration and withdrawal. Key takeaways include:
- Composition scheme is optional for small taxpayers with turnover up to ₹1.5 CR (₹75 lakhs for special category states).
- It offers lower tax rates (1%, 5%, 6%) and simpler compliance with quarterly tax payments.
- There are restrictions on the type of supplies and businesses that can opt for this scheme.
Intro [0:00]
Hello doston! Welcome to the session where we're revising the chapter on the composition scheme. This scheme is an optional method under section 10, designed for small taxpayers. It aims to reduce the compliance burden for those newly liable to register under GST, especially those with turnovers that have recently crossed ₹20 lakhs for services or ₹40 lakhs for goods. The scheme allows for quarterly tax payments and a single annual return, reducing the need for extensive accounting and compliance.
Turnover Limits & Special Category States [4:05]
To qualify as a small taxpayer under the composition scheme, your aggregate turnover in the previous financial year must be up to ₹1.5 CR. This limit is reduced to ₹75 lakhs for special category states, including states like Nagaland, Uttarakhand, Sikkim, Tripura, Arunachal Pradesh, Mizoram, Manipur, and Meghalaya. Remember, these eight states have a lower threshold for eligibility.
Marginal Supply of Services for Goods Suppliers [5:37]
Initially, the composition scheme was for goods and restaurant services. Now, businesses can supply a marginal amount of services along with goods. This marginal amount is capped at 10% of the turnover in the state or ₹5 lakhs, whichever is higher. This limit is assessed state-wise. For example, if a business in Delhi had a turnover of ₹70 lakhs, the marginal service limit would be ₹7 lakhs, while in Kanpur with a turnover of ₹40 lakhs, it would be ₹5 lakhs.
How to Calculate Aggregate Turnover for GST [9:22]
Aggregate turnover includes taxable supplies, exempt supplies (including holy exempt and non-taxable supplies like alcoholic liquor and certain petroleum products), exports, and inter-state supplies to distinct persons. Basically, it's all your outward supplies, whether taxable or not. This total is checked against the ₹1.5 CR or ₹75 lakhs limit to determine eligibility for the composition scheme. Remember, inward supplies under RCM are not included, as turnover refers to sales, not purchases. Also, taxes under GST, interest, and discounts are not part of the turnover. The turnover is calculated from the first of April of the financial year.
PAN-Based Eligibility & Multi-State Business Rules [17:09]
The composition scheme is granted to the taxable person, not the business. This means if you have multiple businesses under the same PAN, either all must opt for the composition scheme or none. You can't mix and match. Also, if you have businesses in both regular and special category states, the lower threshold of ₹75 lakhs applies.
Automatic Withdrawal & Shift to Normal Scheme [20:09]
Your eligibility for the composition scheme lasts until your turnover exceeds ₹1.5 CR or ₹75 lakhs. Once you cross this threshold, you automatically withdraw from the scheme and shift to the normal scheme. For example, if you hit the ₹1.5 CR limit by December 31st, you're under the composition scheme until then, but from January 1st, you're under the normal scheme.
GST Rates for Manufacturers, Traders & Restaurants [22:15]
The GST rates under the composition scheme are simple. For goods manufacturers, it's 1% of the turnover in the state. For goods traders, it's 1% of the taxable turnover in the state. For restaurants, it's 5% of the turnover in the state. Remember, for manufacturers and restaurants, the turnover includes exempt supplies, but for traders, it's only the taxable turnover.
Restrictions & Ineligible Suppliers (Section 10(2)) [32:41]
There are conditions for opting into the composition scheme. You can't make supplies that are not liable to GST. You also can't make inter-state outward supplies (selling goods to other states), though inter-state purchases are allowed. Additionally, you can't supply goods through e-commerce operators, but there are some exceptions. If you're a manufacturer of notified goods like pan masala, aerated water, or certain bricks, you're not eligible for the composition scheme.
Bill of Supply & ITC Restrictions [38:12]
If you're under the composition scheme, you can't collect tax from the buyer, so you issue a bill of supply instead of a tax invoice. Also, you're not eligible for input tax credit (ITC). This is a major drawback of the composition scheme.
Registration Process & ITC Reversal (CMP-02 to CMP-04) [40:22]
If you're an existing registered person wanting to opt into the composition scheme, you need to file CMP-02 before the start of the financial year. For example, to opt in for FY 26-27, you must file CMP-02 before April 1, 2026. You'll also need to reverse your ITC within 30 days of the commencement of the composition scheme. If you withdraw from the composition scheme, you can avail ITC by filing ITC-01 within 30 days of the withdrawal.
