What is Composition Scheme | Every thing related Composition Scheme | Source CS, CA Notes

What is the Composition Scheme?

Composition Scheme is aimed to bring simplicity and to reduce compliance cost for small businessmen or small taxpayers. Small taxpayers are eligible to opt this scheme.

Who is a Small taxpayer in this regard?

Any taxpayer whose annual turn over is less than or equal to Rs. 1 crore in whole of India except the North Eastern States including Himachal Pradesh wherein the limits shall be Rs. 75 lakhs.

What is Aggregate turnover in this regard?

The aggregate turnover means the sum total of:

• Taxable supplies;
• Exempt supplies;
• Zero-rated supplies;
• Inter-state supplies.

Note:- The Reverse charge mechanism supplies are not included here, as these would be added to the turnover of the unregistered supplier.

What are the Rates in Composition Scheme?

S.No.	REGISTERED PERSON	CGST RATE	SGST RATE	TOTAL TAX RATE
1	Manufacturers (Other than manufacturers of goods as may be notified by the Government)	0.5%	0.5%	1
2	Restaurant services i.e., suppliers of food/drink for human consumption (other than alcoholic liquor for human consumption)	2.5%	2.5%	5%
3	Traders or any other supplier eligible for composition levy	0.5%	0.5%	1%

Conditions and restrictions

1. The supplier who opts for composition levy cannot raise tax invoice.
2. Therefore, they need not collect any tax on supply.
3. Hence, the Input tax credit is not available.
4. A person opting for the scheme shall mention on the invoices issued that he has opted for such a scheme.
5. He should also mention that he has opted composition scheme on the notice board at place of business.
6. The following persons cannot opt composition scheme:-
   
• Supplier of services (Except for food & restaurant services).
• Supplier of exempt goods.
• Supplier of Inter-state supplies.
• E-commerce operator.
• Manufacturers of ice-cream, pan masala and tobacco.

Conclusion

This scheme is very good for those who have small businesses. In this scheme, The person who has opted this scheme will not get any ITC because of less rates in the scheme.