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The Benefits And Restriction for SMEs and MSMEs Under Composition Scheme in GST

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Marg ERP Ltd
Marg ERP Ltd
MARG ERP Ltd. has its expertise in providing the perfect customized inventory and accounting solutions for all businesses to get GST compliant.

The heart of Indian economy is governed by 50 million SMEs & MSMEs in India today. These SMEs play a key role in most of the industrial outputs as well as in the exports of various goods across the world.

With both SMEs and MSMEs employing more than 120 million people in India it has emerged as a leading employment-generating sector, over the years. So in this major reformation in the taxation history of India in the form of GST, the impact on the life of SMEs needs to be taken special care as they are a major contributing force for the Indian economy.

After the last GST Council meeting before the GST, the start over the limit for the composition scheme was increased from the present value of INR 50 lakhs to INR 75 lakhs.

Many businesses were already under composition scheme before GST regime and have continued with the composition scheme post GST but there are many new businesses who will be getting registered as they have an option of getting in this scheme with the increased value by Rs 25 lakhs

Increased Limit For GST Regime

The increased limit of upto 75 lakhs has helped number of SMEs and MSMEs to take the benefit of the scheme. In case of special category states the limit remains the same i.e. Rs 50 lakhs and these are the North East State like the Uttarakhand, Himachal Pradesh, Sikkim and other North Eastern State.

Rate of Tax Reduced

The composite dealer will enjoy more benefits of paying a comparatively lower rate of tax. In the composition scheme the tax rate is – 2% for a manufacturer, 1% for a trader and 5% for small restaurants.

The Compliance Facts

The compliance fact for a composite dealer has eased out with composition scheme as the dealer needs to file one return after every three months and one annual return. So the total returns in a year comes out to be 5 returns whereas a normal registered dealer needs to file three returns every month along with one annual returns. This adds up to 37 returns in a year.

By only filing 5 returns in a year, a composite dealer will surely save a lot of time and focus more on the core business activities which are crucial to keep him afloat in the market.

Obligations & Restrictions on Nature of Goods & Services

Entrepreneurs who are engaged in the manufacturing of specific notified goods are restricted to be a part of GST scheme by the government and the GST council. If you are a composite dealer you cannot be engaged in any of the services other than the supply of food and drinks for human consumption.

Under composition scheme no interstate supplies are allowed, you cannot claim input tax credit on inward supply of goods and services and you cannot supply goods through an e-commerce operator.


Therefore SMEs and MSMEs who would want to serve customers in other states, will not have the option to enjoy the composition scheme whatever there turn over may be. Moreover, in a composite scheme a registered person with a single PAN of operations in multiple states, has to either go for “Composition scheme” for all businesses across the country, or opt for regular dealership.

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