GST rates applicable to composition scheme suppliers

Composition scheme in GST is beneficial to small taxpayers whose aggregate turnover is not more than Rs 150 lakhs. For northeastern states the limit is Rs 75 lakhs. The benefit of opting a composition scheme is that you are not required to pay GST at normal rates and certain compliance are not applicable.

In this article, we will be discussing GST rates applicable to a composition scheme dealer. If you want to know the applicability of composition schemes under GST law, then read our previous article when a composition scheme is applicable.

GST rates under composition scheme

As a registered taxable person, if you have opted for a composition scheme, then instead of paying GST at normal rates, you will be paying tax as a fixed percentage of gross turnover.

In case of a manufacturer who has opted for composition scheme, GST rate is 1% of the aggregate turnover of the state or Union territory. This means, CGST @ 0.5% and SGST/UTGST @ 0.5% is to be charged.

The GST rate will be 5% of the aggregate turnover of the state or Union territory in case the person is engaged in supply of food for human consumption. This means, CGST @ 2.5% and SGST/UTGST @ 2.5% is to be charged.

In case of other suppliers, the rate of goods ànd services tax is 1%. Which means, CGST @ 0.5% and SGST/UTGST @ 0.5%.

As per removal of difficulties order number 1/2017-CT dated 13-10-2017, the supplier of food will be eligible for composition scheme even if they supply exempted services including service of extending deposits or loans and receiving interest.

Meaning of turnover to calculate GST for composition scheme

Turnover in state or Union Territory means the aggregate value of all taxable supplies, exempt supplies made within a state or Union territory by a taxable person, exports of goods or services or both and inter state supplies of goods or services or both made from the state or Union territory by the said taxable person. However, it excludes central tax (CGST), state tax (SGST), union territory tax (UTGST), integrated tax (IGST), cess and value of inward supplies on which tax is payable by a person on a reverse charge basis.

Meaning of turnover to calculate goods and services tax for composition scheme requires you to calculate and pay GST on exempt supplies also. This means, if you are supplying taxable and exempted goods, then under composition scheme you will be required to pay tax on your exempted supplies. To avoid this kind of issue, you can form another form of business with a separate income tax PAN, like partnership firm or private limited company, to supply exempted goods.

Importance of the meaning of manufacturer

As per section 2(72) of CGST Act, manufacturer means processing of raw material or inputs in any manner that results in emergence of a new product having a distinct name, character and use.

As discussed above the rate of GST for manufacturers is 1% and for others except a person who is engaged in supply of food for human consumption the rate is 0.5%. 

Based on the above definitions of the term manufacturer, a composition scheme dealer who is engaged in simple activities like packing, re-packing, labelling, testing, repairs and mixing will not be treated as a manufacturer if its not resulted in emergence of a new product. Therefore, in these cases the rate of GST for a composition scheme taxpayer will be 0.5%. All traders are also required to pay GST at the rate of 0.5% if they have opted for a composition scheme.

Important points on GST rates for a composition scheme supplier

Below we have noted down a few important points to be kept in mind while calculating goods and services tax for a composition scheme supplier;

  • Can’t levy GST to recipient of goods – As per GST law, if you have opted for composition scheme, then you will not be allowed to charge GST. This is the most important provision you should note down.
  • Not entitled to any input tax credit.
  • He is not a casual taxable person.
  • He is not a nonresident.
  • Not applicable to manufacturers of ice cream, pan masala and tobacco products – notified u/s 10(2)(e) of CGST Act.
  • On the top of the bill of supply, the supplier has to mention the words “composition taxable person,not eligible to collect tax on supplies”.
  • On every notice or signboard, the supplier should mention the words ” composition taxable person”. These words are also to be mentioned at a prominent place at the principal place of business and at every additional place or places of business.
  • In case the composition scheme supplier deals with both taxable as well as exempted goods under one income tax PAN, GST at a fixed rate shall be payable on supply of both taxable as well as exempted goods. If exempted goods are supplied through a separate form of business having a different income tax PAN, then you need not pay tax on exempted goods.
  • Instead of tax invoices, the supplier paying tax under composition scheme has to issue a bill of supply.
  • The goods held in stock by him have not been purchased from an unregistered supplier and where purchased he pays tax under reverse charge u/s9(4).

is a fellow member of the Institute of Chartered Accountants of India. He lives in Bhubaneswar, India. He writes about personal finance, income tax, goods and services tax (GST), company law and other topics on finance. Follow him on facebook or instagram or twitter.