Who Is Not Eligible For the Composition Scheme?

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Small businesses can opt for the composition scheme under Goods and Services Tax (GST) as a mechanism that is relieving in nature. This is because the processes involved to pay GST is less complicated if done under the composition scheme. They get to pay GST at a rate that is lower and fixed on their turnover.

What Is GST? 

When GST came into effect in India, it was considered as one of the biggest (if not the biggest) indirect tax reform in the country. GST encompasses many indirect taxes and rendered almost all the existing indirect taxes out of effect. So in very simple terms, it is a single tax that is imposed on goods and services and their supply.

Currently, more than 150 countries have executed the GST Act. India joined the gang in July 2017 and follows the dual GST model. This means that the taxes are levied by both the central government as well as the state governments depending on the product or service supplied. As a result, based on the collection of GST it can be divided into three types: State Goods and Services Tax (SGST), Central Goods and Services Tax (CGST) and Integrated Goods and Services Tax (IGST). Each state government collects the SGST of their respective states, whereas the central government collects CGST and IGST.

GST welcomes the scenario in which a nation can have a uniform single tax as part of the taxation system. This means that the possibilities of double taxation will be eradicated. Therefore people who are part of the trading community benefit by a reduction in terms of taxes.

The GST Act helps both the consumer as well as the suppliers in a number of other ways as well. Other than the fact that it makes the tax system so much easier, GST helps in reducing the prices of various goods due to the fact that cascading gets eliminated when the system is in play. Transparency with regard to taxation and the procedure is at the maximum possible level when GST is in effect.

In addition to all these, the line of distinction between goods and services gets blurred because of the way GST works. The state of the national market will be such that its development happens in a uniform manner. With regard to exports, there is a better neutralization of expenses in terms of taxes. This pushes the economic growth of the country upwards as the exporting and manufacturing activities get boosted.

GST Composition Scheme

Taxpayers who have opted for the composition scheme under GST will have simpler practices to comply with while paying the tax amount. There are a number of regulations one must look into and satisfy to be a composition dealer.

Any businessperson whose turnover does not cross 1.5 crores can apply to be part of the composition scheme if he/she is ready to follow the rules and is eligible according to other provisions. A person should compulsorily add the words “composition taxable person, not eligible to collect tax on supplies” as a part of the bill, at its top for any supply made by him/her. Apart from that, the words “composition taxable person” should be written on all notices and signboards put up in public areas.

A composition dealer has to check the rules of paying taxes meticulously as the amount that falls under taxes is different when an unregistered dealer is involved. Section 9 details the regulations that must be looked into if that is the case. Sub-section 4 has information regarding the situation if an unregistered person purchases goods or services from a composition dealer while sub-sections 3 and 4 dictate the scenario when an unregistered person is the seller.

Businesses under a single PAN cannot be separated, implying that a single (or more) business(es) out of the total cannot be registered for the composition scheme while the others are not. The scheme binds all businesses uniformly if they are registered under a single PAN.

Business owners who have opted for the composition scheme cannot claim input tax credit. They should not supply goods that are in the exempted category under GST. Under the GST composition scheme, a taxpayer can involve in supplying services that are worth up to a total of 5 lakh rupees if he/she also engages in the supply of goods.

Who Cannot Apply For The Composition Scheme?

Casual taxable citizens or non-resident taxable people cannot opt for the GST composition scheme. If a business owner supplies goods or services outside a particular state, he/she becomes ineligible to be part of the composition scheme.

As mentioned in one of the above paragraphs, the turnover must not cross 1.5 crores. But in the case of north-eastern India and Himachal Pradesh, since they are included in a special category the turnover has to be less than 75 lakhs.

Anyone who supplies services is not eligible to opt for the GST composition scheme. But this does not hold true for restaurant service providers. Manufacturers involved in the production of pan masala, tobacco and/or ice-cream are ineligible as well.

In addition to that, businesses that make use of e-commerce operators for the supply of their goods cannot apply to be part of the composition scheme.

Opting For the Composition Scheme

A taxpayer can choose to be part of the composition scheme by filing GST CMP-02 via the GST portal. The registration can be done when a financial year begins, that is he/she can apply before 31st March if he/she is looking to opt for the upcoming year’s composition scheme.


To sum up the topic in a very simple way, certain taxpayers are ineligible to choose and be a composition dealer if they are;

· Service providers (other than restaurant services)

· Involved in supplying goods at an inter-state level

· Manufacturers of goods that are exempted under the GST Act

· Casual taxable or non-resident taxable persons

There are concrete rules and regulations all taxpayers must adhere to after opting for the composition scheme as well.

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Accounting Education: Who Is Not Eligible For the Composition Scheme?
Who Is Not Eligible For the Composition Scheme?
Accounting Education
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