Check your eligibility for the GST Composition Scheme, compare tax liability between Composition and Regular schemes, and understand the pros, cons, and applicable rates for your business type.
Simplified compliance — only quarterly returns (CMP-08)
No detailed invoicing required (Bill of Supply instead of Tax Invoice)
Less accounting burden and lower compliance costs
Suitable for small businesses with local customers
Disadvantages
Cannot collect tax from customers — tax is paid out of margins
No Input Tax Credit (ITC) available on purchases
Cannot make inter-state sales of goods
Cannot supply goods through e-commerce operators
Limited to specific turnover thresholds
Not available for certain goods (ice cream, pan masala, tobacco)
Must file CMP-08 quarterly + GSTR-4 annually
Understanding the Composition Scheme
What is the Composition Scheme?
The GST Composition Scheme, introduced under Section 10 of the CGST Act, 2017, is an alternative method of tax payment designed for small taxpayers. Instead of paying GST at standard rates and maintaining detailed records, eligible businesses can opt to pay a flat percentage of their turnover as tax. This significantly reduces the compliance burden in terms of filing returns, maintaining accounts, and issuing invoices.
Composition Tax Rates
Business Type
CGST
SGST / UTGST
Total Rate
Turnover Limit
Manufacturer
0.5%
0.5%
1%
₹1.5 Cr
Trader (goods)
0.5%
0.5%
1%
₹1.5 Cr
Restaurant (non-alcohol)
2.5%
2.5%
5%
₹1.5 Cr
Service Provider
3%
3%
6%
₹50 Lakh
Filing Requirements
Composition dealers are required to file the following returns:
CMP-08 — Quarterly statement-cum-challan, due by the 18th of the month following each quarter. This is a self-assessed statement of tax liability.
GSTR-4 — Annual return, due by 30th April of the following financial year. This summarises the quarterly statements and includes details of inward supplies on which tax is payable under reverse charge.
How to Opt In
Existing taxpayers can opt for the Composition Scheme by filing Form GST CMP-02 on the GST portal before the commencement of the financial year (typically by 31st March). New registrants can opt at the time of registration by selecting the composition option in Form GST REG-01.
Mandatory Exit Conditions
A composition dealer must mandatorily exit the scheme and switch to the regular scheme if:
Aggregate turnover exceeds the prescribed limit during the financial year
The dealer starts making inter-state outward supplies of goods
The dealer starts supplying goods through e-commerce operators
The dealer starts manufacturing ice cream, pan masala, or tobacco products
Upon exit, Form GST CMP-04 must be filed within 7 days of the event triggering the exit, and Form ITC-01 must be filed within 30 days to claim ITC on inputs held in stock.
Frequently Asked Questions
The GST Composition Scheme is a simplified tax scheme under GST for small taxpayers with turnover below specified limits. Instead of charging and collecting GST at normal rates, composition dealers pay tax at a flat, lower rate on their turnover. They file simpler returns (CMP-08 quarterly and GSTR-4 annually) and issue a Bill of Supply instead of a Tax Invoice, making compliance easier and less expensive.
The turnover limit for the GST Composition Scheme is Rs 1.5 crore per annum for manufacturers, traders, and restaurants serving non-alcoholic food. For service providers, the limit is Rs 50 lakh per annum. For businesses in special category states (Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, and Uttarakhand), the limit for goods-based businesses is Rs 75 lakh.
The tax rates under the Composition Scheme are: 1% (0.5% CGST + 0.5% SGST) for manufacturers and traders, 5% (2.5% CGST + 2.5% SGST) for restaurants serving non-alcoholic food, and 6% (3% CGST + 3% SGST) for service providers. These rates are applied on the total turnover and are significantly lower than regular GST rates of 5%, 12%, 18%, or 28%.
No, a composition dealer cannot claim Input Tax Credit (ITC) on purchases. This is one of the key trade-offs of the scheme. Since composition dealers pay tax at a flat rate on turnover and do not collect tax from customers, they cannot set off the GST paid on their inputs against their tax liability. All GST paid on purchases becomes a cost to the business.
The following persons cannot opt for the Composition Scheme: those making inter-state outward supplies of goods, suppliers of goods through e-commerce operators, manufacturers of ice cream, pan masala, or tobacco products, suppliers of non-taxable goods, casual taxable persons, non-resident taxable persons, and businesses exceeding the prescribed turnover limits.
To switch from Composition to Regular scheme, file Form GST CMP-04 on the GST portal. This can be done voluntarily or is mandatory when the taxpayer's turnover exceeds the composition limit, starts making inter-state supplies, or begins supplying through e-commerce. After switching, the taxpayer must file Form ITC-01 within 30 days to claim ITC on inputs held in stock and inputs in semi-finished or finished goods on the date of switch.
Simplify Your GST Compliance
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