9330560978, 7604033348,


GST Composition Scheme contains an option for a registered taxable person having turnover less than the particular limit to pay tax at a lower rate subject to certain specified conditions.

This scheme has been introduced in order to help the small businesses from the larger compliance aspects under the present GST regime.

Threshold for Composition Levy (Section10 (1))

Aggregate turnover in the preceding financial year does not exceed Rs.75 lakh. In case of states like Arunachal Pradesh, Nagaland, Manipur, Assam, Meghalaya, Mizoram, Sikkim, Tripura, Himachal Pradesh – this turnover limit is Rs.50 lakh.

Small taxpayers can opt for the simple composition scheme under goods and services tax (GST) by applying on the portal before July 21.

Rates of tax for Composition Scheme (Section 10(1))

  • This scheme is optional.
  • All registered taxable persons having the same PAN number should opt for the composition scheme, where they will have to pay a fixed percentage of gross turnover in the state/UT as tax.


Rate of CGST + SGST


2.0% of the turnover

Restaurant services

5.0% of the turnover

Other suppliers (traders)

1.0% of the turnover


Non – Eligibility to opt for Composition Levy (Section 10(2))

The following categories of registered persons are not eligible to opt for the composition scheme:

  1. Supplier of services other than supplier of restaurant service
  2. Supplier of goods which are not taxable under CGST Act/SGST Act/UTGST Act
  3. An inter-state supplier of goods
  4. Person supplying goods through an E-commerce operator who is required to collect tax at source.
  5. A manufacturer of goods as notified by the Government on the recommendations of the Council.

Lapse of option

The option availed by a registered person lapses with effect from the day on which his aggregate turnover during the financial year exceeds Rs.75 lakh.

Non – Availability of Input Tax Credit (Section 10(4))

  1. A person paying tax under this section cannot charge GST in their invoice.
  2. Such a person is also not entitled to ITC
  3. However, if he ceases to pay tax u/s 10, he shall be entitled to take credit of input tax in respect of goods held in stock, inputs contained in semi-finished or finished goods held in stock and on capital goods on the day immediately preceding the date from which he becomes liable to pay tax.

Transition provisions if a business transits from Composition Scheme under current regime to Regular Taxation under GST


Taxpayers registered under composition scheme under the current regime will be allowed to take credit of input held in stock, or in semi-finished goods or in finished goods on the day immediately preceding the date from which they opt to be taxed as a regular tax payer.

Conditions for availing input credit on stock lying at the time of transition

Following are the conditions which must be addressed by the taxpayer to avail credit on input at the time of transition from composition scheme to the normal scheme:

  1. Such inputs or goods are intended to be used for making taxable supplies under GST law.
  2. Taxpayer was eligible for CENVAT Credit on such goods under the previous regime, however, couldn’t claim it being under composition scheme.
  3. Such goods are eligible for input tax credit under GST regime.
  4. The taxpayer has legal evidence of input tax paid on such goods.
  5. Such invoices were issued within a period of 12 months from GST applicable date.

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.

Penal consequences for violation of provisions of the Act (Section 10(5))

If a taxable person has paid tax under the composition scheme though he was not eligible for the scheme, then the person would be liable to penalty and the provisions of Section 73 or 74 of the CGST Act shall be applicable for determination of tax and penalty.

Return under GST (Section 39(2))

The taxable person is required to furnish only one return i.e. GSTR-4 on a quarterly basis before 18th of the month succeeding the quarter during which the supplies were made and an annual return in FORM GSTR-9A.

Businesses opting for composition scheme will see a lesser compliance burden as they will have to file returns only once in a quarter as against monthly returns to be filed by other businesses.

Compliances under Composition Scheme

Form No




Intimation filed for opting for composition scheme filed by a person granted with provisional registration.

To be filed electronically prior to the appointed day, but not later than 30 days of the appointed day. If intimation is filed after the appointed day, the registered person shall not collect any tax from the appointed day but shall issue bill of supply for supplies made after the said day.


Intimation for opting for Composition Scheme filed by a registered person

To be filed electronically prior to the commencement of the financial year for which the option to pay tax under the aforesaid section is exercised along with the statement in Form GST ITC -3 in accordance with the provisions of ITC rules, within 60 days from the commencement of the relevant financial year.


Details of stock, including the inward supply of goods received from unregistered person, held by a person granted with provisional registration on the day preceding the date from which he opts to pay tax under the said section.

To be submitted within 60 days of the date from which the option for composition levy is exercised or within such further period as may be extended by the Commissioner in this behalf.


Application for withdrawal from the Composition Scheme

To be filed within 7 days from the day a registered person ceases to satisfy any of the conditions mentioned in section 10 or these rules, or by a person who wants to withdraw from the Composition Scheme. He shall be required to issue tax invoice for every taxable supply made thereafter.


Show Cause Notice for denial of Composition Scheme to registered person.

Where the proper officer has reasons to believe that the registered person was not eligible to pay tax under Section 10 or has contravened the provisions of the Act or these rules, he may issue a notice to such person to show cause as to why the option to pay tax under Section 10 should not be denied.


Reply to Show Cause Notice for denial of Composition Scheme

Reply to be filed within 15 days of the receipt of such notice.


Order of withdrawal of Composition Scheme

The proper officer shall issue an order within 30 days of receipt of such reply, either accepting the reply, or denying the option to pay tax under Section 10 from the date of option or from the date of the event concerning such contravention, as the case may be.


Effective date for Composition Levy

The option to pay tax under section 10 shall be effective from:

  1. The beginning of the financial year, where the intimation is filed by a registered person who wants to opt for the scheme, and
  2. The appointed date, where intimation is filed by a person granted with provisional registration.

Conditions and Restrictions for Composition Levy

The person exercising the option to pay tax under Section 10 shall comply with the following conditions:

  1. He is neither a casual taxable person nor a non-resident taxable person.
  2. The goods held in stock by him on the appointed day have not been purchased in the course of inter-state trade or commerce or imported from a place outside India or received from his branch situated outside the state or from his agent or principal outside the state, where the option is exercised by a person granted with provisional registration.
  3. The goods held in stock by him have not been purchased from an unregistered person and where purchased, he pays tax under reverse charge.
  4. He shall pay tax under reverse charge on inward supply of goods and services or both from  unregistered persons.
  5. He was not engaged in the manufacture of goods as notified under Section 10(2)(e), during the preceding financial year.
  6. He shall mention the words “composition taxable person , not eligible to collect tax on supplies” at the top of the bill of supply issued by him.
  7. He shall mention the words “composition taxable person” on every notice or signboard displayed at a prominent place at his principal place of business and at every additional place or places of business.

Negative list of composition scheme – ice cream, pan masala, tobacco

Bill of supply

Since a scheme holder is not required to pay taxes at regular rates, he is not liable to issue a Tax Invoice rather issue a Bill of Supply making this a more convenient option as lesser details are required.

FAQs related to Composition Levy

Q.1 Can a person paying tax under composition scheme make supplies of goods to SEZ?

A.1. No. Supplies to SEZ from domestic tariff area will be treated as inter-State supply. A person paying tax under composition scheme cannot make inter-State outward supply of goods. Thus, for making supplies to an SEZ unit, a person needs to take registration as a regular taxpayer. The supplies to SEZ will be zero rated and the supplier will be entitled to make supplies without payment of tax or if he pays tax, he will be entitled to refund of tax so paid.

Q.2. Can supplier of Services opt for composition levy?

A.2. No, the only exception being supplier of restaurant services.

Q.3. What are the basic information that need to be furnished in GSTR-4?

A.3. It would contain details of the turnover in the State or Union territory, inward supplies of goods or services or both and tax payable.

Go Back