GST Composition Scheme Accounting

August 4, 2025

Introduction: What is the GST Composition Scheme?

The GST Composition Scheme is a simplified taxation scheme under the Goods and Services Tax (GST) framework. Here you can learn the complete accounting process for a Composition dealer. It is designed specifically for small taxpayers to reduce the compliance burden. Instead of filing multiple returns and maintaining detailed records, eligible businesses can pay tax at a fixed percentage of their turnover.

Eligibility Criteria for GST Composition Scheme

To opt for the Composition Scheme, a taxpayer must satisfy the following conditions:

1. Turnover Limit (as per latest GST law):

For manufacturers & traders: Up to ₹1.5 crore (₹75 lakhs for special category states).
For service providers: Up to ₹50 lakhs per annum.

2. Other Conditions:

Must be a registered taxpayer under GST.
Cannot engage in interstate supplies of goods or services.
Cannot supply goods through e-commerce operators, required to collect TCS.
Cannot be a non-resident taxable person or ca asual taxable person.
Should not supply non-taxable goods under GST (e.g., petrol, alcohol).

GST Rates Under Composition Scheme

Type of Business	GST Rate
Manufacturers (except notified)	1% (0.5% CGST + 0.5% SGST)
Traders (Goods Suppliers)	1% (0.5% + 0.5%)
Restaurants (not serving alcohol)	5% (2.5% + 2.5%)
Service Providers	6% (3% + 3%)

Returns under the Composition Scheme

One of the biggest benefits is simplified return filing:

Return Form	Description	Frequency
CMP-08	Statement-cum-challan for tax	Quarterly
GSTR-4	Annual return	Annually (by April 30)
ITC-03	Filed when switching to the Composition Scheme from the regular	As applicable

Note: Composition dealers cannot claim Input Tax Credit (ITC).

Due Dates under the Composition Scheme

Form	Due Date
CMP-08	18th of the month after each quarter
GSTR-4	30th April of the following financial year

Late filing results in interest at 18% and a late fee of ₹50 per day (₹20 for Nil returns).

Reverse Charge Mechanism (RCM) for Composition Dealers

Although composition dealers cannot collect GST from customers, they are still liable to pay GST under RCM in specific cases such as:

Inward supplies from unregistered dealers (if notified).
Import of services
Notified goods/services like legal services, transport, etc.

RCM paid cannot be claimed as ITC – it becomes part of the cost.

Ineligibility / Restrictions

A registered person cannot opt for the Composition Scheme if:

They make interstate outward supplies.
They deal in non-taxable or exempted goods/services.
They supply goods through e-commerce platforms that collect TCS.
They are manufacturers of ice cream, pan masala, or tobacco products.

Important Points for Businesses

Composition dealers must mention “composition taxable person” on every bill.
They must issue a Bill of Supply, not a tax invoice.
They cannot charge GST separately to customers.
They must display “Composition Dealer” status on the notice board and signboards.

Benefits of the Composition Scheme

Simplified tax calculation
Lesser compliance and paperwork
Lower tax liability
Ideal for small businesses with limited turnover

Disadvantages

Cannot claim input tax credit
Not allowed to do interstate sales
Cannot sell on marketplaces like Amazon/Flipkart (with TCS)
Not suitable for growing or service-based businesses

Conclusion

The GST Composition Scheme is a boon for small taxpayers aiming to simplify GST compliance and reduce paperwork. However, businesses must evaluate their turnover, type of supply, and growth plans before opting for this scheme.

For more info- visit- GST Protal

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