GST Composition Scheme for startups and Small enterprises.

Composition Scheme under GST

Under various laws there is a provision of Composition scheme which is for the small businesses & in GST also to make compliance easier Composition Scheme for many startups and Small & Medium Enterprise (SMEs) has been introduced.

To know where does these composition scheme applies & it’s further compliance s, read as under:

  1. Any dealer whose aggregate turnover in a financial year does not exceed Rs. 75 Lakh can opt for composition scheme.
  2. Businesses dealing only in goods can opt for composition scheme. i.e. A service provider is mandatory required to get registration under GST without looking to the limit of 19 lacs.
  3. The person who is in the business of providing services cannot opt for this scheme. However, restaurant sector taxpayers may also opt for the scheme( if annual turnover is below Rs 75 Lakhs).
  4. The tax rate in this scheme shall be 1% for manufacturer, 2.5% for restaurant sector and 0.5% for other suppliers of turnover.
  5. Any taxable person covered under Reverse Charge Mechanism cannot opt for this scheme.
  6. A Composition Dealer is not allowed to collect composition tax from the buyer.
  7. Composition Scheme is available only for dealers who are doing business in a single state.

Compliance s for such dealer 

  1. A taxpayer who is opting composition scheme will be required to file one return on quarterly basis by 18th of following month.
  2. Such dealer cannot issue a tax invoice.
  3. A buyer from composition dealer will not be able to claim input tax on such goods, which leads to increase in cost of buyer from such dealer.

Limitation of Composition Scheme:

  1. No Input Tax Credit allowed to whosoever dealing with this dealer.
  2. Even a single rupee Inter State Transaction if happened will not be eligible for composition scheme.
  3. Though the tax rate is very minimal of 1%, 2.5% but that is the burden on the pocket of the composition dealer.
  4. Wrong claim under composition scheme shall lead to heavy penalty i.e. such a person shall be liable to pay all the taxes which  he would have paid under the normal business.

Treatment of Closing Stock of Existing Composition Dealer:

The credit held in Closing Stock of existing composition scheme dealer shall be eligible for credit on the day immediately preceding the date from which they opt to be taxed as a regular tax payer.


Therefore we suggest that composition scheme shall be availed only by very small scale traders whose complete business is limited to a single state & below 75 lacs i.e. only for B2C businesses. 

Though govt. may, by notification increase the limit but does not exceed 1 crore, as may be recommended by the council

References for Composition Scheme:





0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *