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Benefits of Registering under GST Composition Scheme

Updated on:  

08 min read

In this article, we shall discuss the benefits of registering under the GST Composition Scheme even if you are not liable for GST Registration according to turnover.

Latest Updates on Composition Scheme

28th May 2021
As per the outcome of the 43rd GST Council meeting and CBIC notification,
(1) Interest relief has been provided for filing of CMP-08 for Jan-March 2021 quarter as per which, for any delay, interest is not charged until 3rd May, whereas 9% of reduced interest will be charged if filing is done thereafter until 17th June, and 18% later on.
(2) The due date to file GSTR-4 for FY 2020-21 is extended up to 31st July 2021.
(3) The maximum late fee for GSTR-4 that can be charged will be restricted to Rs.500 per return for nil filing and Rs. 2000 for other than nil filing.

1st May 2021
(1) The due date to file GSTR-4 for FY 2020-21 was extended from 30th April 2021 to 31st May 2021.
(2) Form CMP-08 that was due by 18th April 2021 for January-March 2021 has been given a relaxation in the interest charges. No interest for filing on or before 8th May, interest reduced to 9% between 9th May and 23rd May, but charged at 18% thereafter.
(3) The time limit to file ITC-03 by newly opted composition taxable persons for FY 2021-22 is extended up to 31st May 2021.

21st September 2020
The late fee has been reduced on filing pending Form GSTR-4 (Quarterly Return). The taxpayer is not required to pay the late fee if the tax liability is ‘NIL’. For other cases, the late fee has been restricted to Rs.500.

However, the pending GSTR-4 (quarterly) related to FY 2017-18 and 2018-19 has to be filed on or before 31.10.2020.

31st August 2020
The due date for furnishing Form GSTR-4 for the FY 2019-20 from 31st August 2020 to 31st October 2020.

21st July 2020
The facility to file GSTR-4 (Annual Return) is now available on GST portal.

13th July 2020
The due date to file GSTR-4 (Annual Return) has been extended to 31st August 2020 from 15th July 2020.

3rd April 2020
1. The time limit to opt into the composition scheme for the FY 2020-21 in form CMP-02 has been extended up to 30th June 2020. It applies for both taxpayers registered under section 10 of the CGST Act as well as the taxpayers opting for the scheme notified via CGST (Rate) notification no. 2/2019 dated 7th March 2019.
2. The time limit to file form ITC-03 has accordingly been extended till 31st July 2020.
3. The dealers can submit challan-cum-statement in form CMP-08 for the January-March 2020 quarter by 7th July 2020.
4. The time limit to file GSTR-4 annual returns for the FY 2019-20 by the composition dealers has been extended till 15th July 2020.

What is the Composition Scheme Under GST?

Section 10 of the GST law contains the provision with respect to the registration of a taxpayer under composition scheme. The basic principle underlying the composition scheme is to minimize the burden of compliance for small taxpayers. There are around 8 million taxpayers that are expected to be migrated from the current laws into the GST regime. However, many of these taxpayers will have limited turnover and may not have requisite resources and expertise to comply with all the procedures mentioned under the GST. 

Accordingly, the government came up with composition scheme wherein any taxpayer whose turnover is below Rs 1.0 crore* can choose not to register as a normal taxpayer. Instead, he may choose to get registered as a taxpayer under composition scheme and pay taxes on his supplies at a nominal rate. However, he shall not be eligible to issue a tax invoice and cannot utilize the credit of input tax paid as a result thereof. 

As per the CGST (Amendment) Act, 2018, a composition dealer can also supply services to an extent of ten percent of turnover, or Rs.5 lakhs, whichever is higher. This amendment will be applicable from the 1st of Feb, 2019. Further, GST Council in its 32nd meeting proposed an increase to this limit for service providers on 10th Jan 2019**.  

*Update as on 1st Feb 2019
*CBIC has notified the increase to the threshold limit from Rs 1.0 Crore to Rs. 1.5 Crores.

**Update as on 10th Jan 2019
As per 32nd GST Council Meeting held on 10th Jan 2019, Service Providers can opt into the Composition Tax Scheme, and the Government has set the threshold turnover for service providers at Rs. 50 lakhs to be eligible for this scheme.

Benefits of Registering under GST Composition Scheme

Below are some of the prominent reasons why you should choose to get registered as a supplier under the composition scheme:

  • Limited Compliance:  Under the composition scheme, the taxpayer is required to furnish quarterly return only, and thus he need not worry on record keeping and can focus on his business more rather than being occupied in compliance procedures.
  • Limited Tax Liability: Another benefit of getting registered under the composition scheme is that the tax rate for such taxpayer is nominal under the GST Law. 

Tax rates are calculated as % on turnover:

Composition-Scheme---Applicable-GST-Rates

As per notification 01/2018 dated 01.01.2018, turnover for traders has been defined as ‘ Turnover of taxable supplies of goods’. 

Refer the table below to understand the benefit for small taxpayers:

ParticularsDescriptionRegistered as a Normal TaxpayerDescriptionRegistered as a Taxpayer under Composition Scheme
ATotal Sale Value(MRP)118000Total Sale Value(MRP)118000
BSales Value exclusive of taxes100000Sales value exclusive of taxes118000
CGST @ 18% on sales value18000GST @ 1% on sales value1180*
DInput Purchases70000Input Purchases70000
EGST @ 18%12600GST @ 18%12600
FTotal Purchase Value (D+E)82600Total Purchase Value (D+E)82600
GNet GST Liability (C-E)5400Net GST Liability (only C)1180
HNet Profit {A-(F+G)}30000Net Profit {A-(F+G)}34220

*Under composition scheme, a supplier cannot collect tax separately in an invoice. Here breakup is given only for reference and understanding purpose. Thus if you see in above example, a supplier registered under the composition scheme and supplying such goods to the consumer at similar rates is earning more profit and his tax liability is also lower.

  • High Liquidity: One of the major benefits of registering as a composition supplier is high fund availability in the business. A normal taxpayer will be required to pay output tax on his supplies at a standard rate and any credit of input is available only when his own supplier files a return online which shall reconcile with his own return. Thus a large chunk of his working capital will always remain blocked in the form of input credit. However, for a supplier registered under the composition scheme, output liability will be nominal and he does not need to bother about return filing by his supplier. Thus if we refer to the above-mentioned case, for a normal taxpayer, apart from a higher tax liability of Rs. 4220 (5400-1180), a sum of Rs. 12,600 will remain blocked as input credit until his supplier file the required return. On the other hand, a supplier under the composition scheme is required to pay only Rs. 1180.
  • Level Playing Field: Just because a taxpayer has chosen to get registered under the composition scheme, it doesn’t necessarily mean he is losing the competitive edge. Since the profit margin of a supplier in composition scheme is more than a large taxpayer, such supplier can outplay the economies of scale of large enterprises by offering competitive prices and have a better hold on the local market of supply. Thus composition scheme ensures the interest of small suppliers carrying out intrastate transactions and provides with a sustainable and competitive supply market.

Hence, it can be said that composition scheme will be a growth driver for small taxpayers who are carrying out intrastate transaction and not import-export of goods. If any taxpayer carries out interstate transactions or gets into import-export transaction then the benefit of composition scheme is not available to such taxpayer and such suppliers are required to get registered as a normal taxpayer. 

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