The GST Composition Scheme under Section 10 of the CGST Act is a simplified taxation option for small businesses. Instead of maintaining detailed invoice-level records and filing monthly returns, composition dealers pay a flat tax rate on turnover and file quarterly returns. If your business turnover is below ₹1.5 crore (₹75 lakh for specified special category states), composition can significantly reduce your compliance burden.
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1. What is the Composition Scheme?
Key features of the composition scheme:
- Pay GST at a fixed flat rate on total turnover — no transaction-level calculation
- Quarterly statement and annual return — far less compliance than monthly filing
- Simplified bookkeeping
- Cannot collect GST from customers — tax borne by the dealer
- Cannot claim Input Tax Credit (ITC) on purchases
2. Who is Eligible?
| Business Type | Turnover Limit |
|---|---|
| Manufacturers and traders (goods) | Up to ₹1.5 crore/year (₹75 lakh for special category states) |
| Restaurants not serving alcohol | Up to ₹1.5 crore/year |
| Service providers (CGST Rule 7) | Up to ₹50 lakh/year |
Cannot opt: Inter-state suppliers, e-commerce sellers, manufacturers of notified goods (tobacco, pan masala, ice cream), service providers above ₹50 lakh.
3. Tax Rates Under Composition
| Category | CGST | SGST | Total GST |
|---|---|---|---|
| Manufacturers and traders | 0.5% | 0.5% | 1% of turnover |
| Restaurants (no alcohol) | 2.5% | 2.5% | 5% of turnover |
| Service providers (Rule 7) | 3% | 3% | 6% of turnover |
4. Filing Requirements — CMP-08 and GSTR-4
| Return | Frequency | Due Date |
|---|---|---|
| CMP-08 | Quarterly (self-assessed tax statement) | 18th of month after quarter end |
| GSTR-4 | Annual return | 30th April of next financial year |
5. Restrictions and Disadvantages
- No ITC: Cannot claim input tax credit on purchases — biggest disadvantage for high-input-cost businesses
- No inter-state supply: All sales must be intra-state only
- Cannot issue tax invoice: Issue "Bill of Supply" instead — buyers cannot claim ITC from you
- Disclosure requirement: Must display "Composition Taxable Person, not eligible to collect tax on supplies" on all business premises and invoices
- Tax on turnover: Pay tax even if margins are thin or business runs at a loss
6. Composition vs Regular GST — Which is Better?
Choose Composition if: Your customers are mostly end consumers (B2C), you have low input costs, all sales are intra-state, and you want minimal compliance.
Choose Regular if: Your customers are GST-registered businesses who need ITC, you have significant input purchases, or you want to make inter-state supplies.
7. How to Opt for Composition Scheme
- Log in to gst.gov.in → Services → Registration → Application to Opt for Composition Levy
- File Form CMP-02 before the start of the financial year (by 31st March)
- New registrants can opt at the time of fresh registration
8. Exiting the Composition Scheme
File Form CMP-04 to exit if your turnover exceeds the threshold, you wish to make inter-state supplies, or you start supplying through e-commerce. On exit, file pending returns, reverse any ITC, and migrate to regular GST.
Disclaimer: This article is for general informational and educational purposes only. It represents our professional views as Chartered Accountants. This content should not be construed as legal or tax advice. Tax laws are subject to change with each Union Budget. For advice specific to your situation, please consult our experts directly.
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