GST Composition Scheme: Eligibility, Rates & Benefits

The GST Composition Scheme is a simplified tax scheme for small businesses in India. It allows eligible taxpayers to pay GST at a fixed rate on their turnover instead of the regular rate, with simplified compliance requirements. This guide covers everything you need to know about the scheme.

Disclaimer: CitizenNest is an independent informational platform and is not affiliated with or endorsed by the Government of India. Verify all details on the official GST portal.

What is the GST Composition Scheme?

The Composition Scheme under Section 10 of the CGST Act allows small taxpayers to:

• Pay tax at a lower fixed rate based on turnover
• File quarterly returns instead of monthly
• Maintain simplified records (no detailed invoices required)

Eligibility for Composition Scheme

Who Can Opt In?

• Manufacturers with aggregate turnover up to ₹1.5 crore (₹75 lakh for special category states)
• Traders (goods) with aggregate turnover up to ₹1.5 crore
• Restaurants (not serving alcohol) with aggregate turnover up to ₹1.5 crore
• Service providers with aggregate turnover up to ₹50 lakh (under notification for services)

Who Cannot Opt In?

• Suppliers of inter-state outward supplies (inter-state purchases are allowed)
• Casual taxable persons and non-resident taxable persons
• Suppliers through e-commerce operators who are required to collect TCS
• Manufacturers of ice cream, pan masala, tobacco, and aerated drinks
• Businesses holding multiple GSTINs where any one entity is not eligible

Composition Scheme Tax Rates

Note: Tax is calculated on turnover, not on individual invoices. Composition dealers cannot charge GST to their customers and cannot issue tax invoices (only bills of supply).

Key Restrictions

1. No Input Tax Credit (ITC) — Composition dealers cannot claim ITC on purchases
2. No tax collection — Cannot charge GST on bills; must issue bill of supply instead of tax invoice
3. No inter-state supply — Cannot make inter-state outward supplies of goods
4. "Composition taxable person" must be displayed on every bill, signboard, and notice board
5. No supply through e-commerce platforms that collect TCS
6. Reverse charge — Must pay tax on reverse charge basis on inward supplies and file regular returns for such supplies

Filing Returns: CMP-08

Composition dealers file a simplified quarterly return called CMP-08 (Statement for Payment of Self-Assessed Tax).

CMP-08 Due Dates

How to File CMP-08 Online

1. Log in to GST Portal
2. Go to Services → Returns → Returns Dashboard
3. Select the Return Filing Period (quarter)
4. Click on CMP-08 tile
5. Enter outward supplies (inter-state inward supplies on reverse charge, if any)
6. Enter inward supplies attracting reverse charge
7. Tax is auto-calculated based on the applicable rate
8. Pay the tax via electronic cash ledger
9. File using DSC or EVC

Annual Return: GSTR-4

In addition to CMP-08, composition dealers must file GSTR-4 (annual return) by 30th April of the following financial year.

How to Opt In to Composition Scheme

For New Registrations

1. During GST registration, select "Composition" in Part B of the REG-01 form
2. The option is available at the time of applying for new registration

For Existing Regular Taxpayers

1. Log in to the GST Portal
2. Go to Services → Registration → Application to Opt for Composition Levy
3. File GST CMP-02 form
4. Submit before 31st March of the financial year from which you wish to switch
5. File ITC-03 within 60 days to reverse all ITC claimed on stock/capital goods
6. The scheme takes effect from 1st April of the next financial year

How to Opt Out of Composition Scheme

If your turnover exceeds the threshold or you wish to switch to regular scheme:

1. Log in to the GST Portal
2. Go to Services → Registration → Application for Withdrawal from Composition Levy
3. File GST CMP-04 form
4. File the withdrawal within 7 days of crossing the turnover threshold
5. Start filing regular returns (GSTR-1 and GSTR-3B) from the effective date
6. You become eligible to claim ITC on stock and capital goods from the transition date

Benefits of Composition Scheme

1. Lower tax rate — Pay 1-6% instead of regular 5-28% GST rates
2. Simplified compliance — Quarterly CMP-08 instead of monthly GSTR-1 and GSTR-3B
3. Less paperwork — No detailed invoicing; only bills of supply required
4. Lower compliance cost — Reduced CA/accountant fees due to simpler filing
5. Cash flow advantage — Tax paid on turnover basis quarterly

When Should You NOT Choose Composition Scheme?

• If your customers are registered businesses who need ITC on purchases from you
• If you plan to sell inter-state (outside your state)
• If you want to sell on e-commerce platforms like Amazon, Flipkart
• If your business has high input costs and ITC benefit would exceed the lower rate advantage
• If you provide mixed services and goods with services exceeding the threshold

Related Guides

• GST Registration Online Guide
• GSTR-9 Annual Return Filing Guide
• E-Way Bill Generate Online Guide

FAQs

1. Can a composition dealer make inter-state purchases?

Yes. Composition dealers can make inter-state purchases (inward supplies). The restriction is only on inter-state outward supplies (sales).

2. What is the turnover limit for composition scheme?

The aggregate turnover limit is ₹1.5 crore for manufacturers and traders (₹75 lakh for special category states). For service providers under the notification, it is ₹50 lakh.

3. Can a composition dealer issue a tax invoice?

No. Composition dealers must issue a bill of supply (not a tax invoice) and cannot charge GST separately on their bills.

4. What happens if turnover exceeds ₹1.5 crore mid-year?

You must file CMP-04 within 7 days and switch to the regular scheme. You will need to start filing GSTR-1 and GSTR-3B from the date of crossing the threshold.

5. Can a composition dealer claim ITC?

No. Composition dealers cannot claim Input Tax Credit on their purchases. This is one of the major trade-offs for the lower tax rate.

6. Can a composition dealer supply services?

Yes, but with limits. Under the special provision (Notification No. 2/2019), service providers with turnover up to ₹50 lakh can opt for composition at 6%. Regular composition dealers (manufacturers/traders) can supply services up to 10% of turnover or ₹5 lakh, whichever is higher.

7. Is composition scheme beneficial for restaurants?

Yes, for small restaurants (not serving alcohol) with turnover up to ₹1.5 crore. The 5% composition rate compared to the regular 5% rate (without ITC) is similar, but the compliance is much simpler.