The Composition Scheme under GST (Goods and Services Tax) is a simplified tax scheme designed for small taxpayers. Under this scheme, eligible taxpayers can pay a fixed percentage of their turnover as tax, without having to comply with the regular compliance requirements of GST

For small businesses and service providers with a turnover of up to Rs. 1.5 crore per annum, The composition Scheme under the Central Goods and Services Tax is very helpful. It is designed to simplify the tax compliances and reduces the tax burden.

Eligibility to avail Composition Scheme:

1. The Annual Turnover of the business should be upto Rs.1.5 crore
2. There should not be any inter-state supplies of goods and services
3. The taxpayers must not be a manufacturer of any notified goods ( i.e. ice cream, tobacco and pan masala)
4. The taxpayer must not be a non-resident taxable person or a person registered under the GST reverse charge mechanism.

Advantages of the scheme:

Reduced Compliance Burden: The Composition Scheme offers a simpler tax regime with fewer compliance requirements. Under this scheme, taxpayers are not required to maintain detailed records of their inward and outward supplies, file monthly returns, or undergo regular audits.
Lower Tax Rates: Composition taxpayers are subject to lower tax rates compared to regular taxpayers. For example, manufacturers and traders of goods pay only 1% tax, while restaurants pay 5%. This helps reduce the tax liability of small businesses.
Cash Flow Benefit: Since composition taxpayers are not allowed to claim input tax credit, they pay tax only on the outward supplies made. This helps in improving cash flow for small businesses.
Voluntary Scheme: The Composition Scheme is voluntary, and small taxpayers can choose to opt-in or opt-out of the scheme depending on their business needs. This offers flexibility to businesses and helps them manage their tax liability more effectively.
Ease of Doing Business: The simplified compliance requirements and lower tax rates under the Composition Scheme make it easier for small businesses to comply with GST regulations and focus on their core business activities.

Overall, the Composition Scheme is a beneficial scheme for small taxpayers who are looking to reduce their compliance burden and manage their tax liability more effectively. However, businesses must carefully evaluate the benefits and limitations of the scheme before opting for it.

Disadvantages of the Composition Scheme:

Limited Eligibility: Only businesses with an annual turnover of up to Rs. 1.5 crore for goods and Rs. 50 lakhs for services are eligible for the Composition Scheme. This means that businesses that exceed this threshold will have to switch to the regular GST regime, which may result in increased compliance requirements and higher tax liabilities.
Limited Supply of Goods: Composition taxpayers are not allowed to make inter-state supplies or supply goods through e-commerce platforms. This can limit the business opportunities for small businesses that want to expand their market beyond their home state.
No Input Tax Credit: Composition taxpayers are not allowed to claim input tax credit on their purchases, which can result in a higher tax liability for businesses that have significant input tax credit claims.
Restriction on Goods and Services: Composition taxpayers are not allowed to supply exempted goods or services. This means that businesses that supply both exempted and taxable goods or services will have to opt for the regular GST regime.
Limited Payment Options: Composition taxpayers are not allowed to collect tax from their customers, which can limit their payment options. They can only collect tax at a fixed rate based on their turnover.
Compliance Burden for Certain Businesses: While the Composition Scheme offers reduced compliance requirements, businesses that have complex supply chains, multi-state operations, or high-value transactions may still face significant compliance burden even under the Composition Scheme.

The Composition Scheme under GST is available for businesses that fall under the following

Categories:

Manufacturers of Goods: Manufacturers of goods with an annual turnover of up to Rs. 1.5 crore are eligible for the Composition Scheme. They are required to pay a tax rate of 1% on their turnover.
Traders of Goods: Traders of goods with an annual turnover of up to Rs. 1.5 crore are eligible for the Composition Scheme. They are required to pay a tax rate of 1% on their turnover.
Restaurants: Restaurants with an annual turnover of up to Rs. 1.5 crore are eligible for the Composition Scheme. They are required to pay a tax rate of 5% on their turnover.
Service Providers: Service providers with an annual turnover of up to Rs. 50 lakhs are eligible for the Composition Scheme. However, only certain types of service providers are eligible, such as small service providers and professionals such as lawyers, doctors, and accountants. They are required to pay a tax rate of 6% on their turnover.

It is important to note that businesses that fall under the above categories are not automatically eligible for the Composition Scheme. They must first register under GST and then opt for the Composition Scheme if they meet the eligibility criteria. Additionally, businesses that supply exempted goods or services, make inter-state supplies, or supply goods through e-commerce platforms are not eligible for the Composition Scheme.