1. Composition levy permits a person to pay GST at a flat rate on the outward supply without claiming the benefit of input tax credit. The basic reason behind the introduction of this system is that some businessmen have variety of products for trading and it becomes cumbersome for them to maintain product by product details. Another benefit is that one needs to file only 1 return per quarter if he/she has opted for composition.

2. Earlier, only traders or manufacturers were allowed to opt for this scheme. Service providers were strictly out of the picture of composition except for restaurants, catering etc. Due to this, registered persons engaged in the supply of services were not eligible for composition scheme. As a result, manufacturers and traders supplying services were unable to opt for the scheme even if its percentage of service was very small as compared to the supplies of goods. With a view to enable these taxpayers to avail of the benefit of composition scheme, a new provision is being added which makes them eligible for the scheme even if they supply services of value not exceeding 10% of the turnover in the preceding financial year in a state/union territory or Rs.5 lakhs, whichever is higher.

3. The levy of composition is optional. For registration under the scheme, intimation in FORM GST REG- 01 must be filed. One may opt for this scheme only if the aggregate turnover in the preceding financial year is less than Rs.1.5 crores. Aggregate turnover shall include turnover all over India of the PAN holder including the amount of nil rated, exempt, non-GST supply. Also, it shall include the turnover of export. All that we have mentioned above seem to be advantageous to the composite dealer as most of the administration cost will be reduced and person has to pay minimal rate of tax.

4. The conditions to be followed for opting into this scheme are:

1. The basic condition is that the person opting for composition levy is not permitted to claim the Input Tax Credit (ITC) on inward as well as on the taxes paid under Reverse Charge Mechanism (RCM).

2. The person is liable to pay reverse charge on the supplies notified u/s 9(3) & 9(4) of CGST Act, 2017. Though he may not maintain his books, but it is required to keep track of inputs liable to RCM and pay the tax at the rate notified for the relevant RCM supply.

3. If the aggregate turnover exceeds the threshold limit, the person will have to opt out of the scheme and will not be eligible for opting in the scheme for the next year. However, he shall be eligible for opting in the scheme in third year if the turnover is below the threshold in second year.

4. The manufacturers of ice-cream, pan masala and tobacco are not allowed to opt for this scheme.

5. The biggest drawback of the scheme is that if there are a number of branches in different states of the same PAN holder and one of the branch is not eligible for this scheme, then all the other will also not be eligible. If one opts for composition, others have to compulsorily opt for it.

Assume that a person’s one branch is in specified state and the person wants to opt for composition in all the states he has branches. The effective threshold will come to Rs. 75 lakhs instead of 1.5 crores since branch is situated in a specified area.

So, to conclude composition scheme is boon for small tax-payers who neither have branches in other states nor have inter-state supplies. It is a best step in case of transfer from registered to unregistered.