The GST Composition Scheme is a simplified tax payment option designed for small businesses in India. Instead of maintaining detailed invoices, filing multiple monthly returns, and paying GST at standard rates, eligible businesses under the Composition Scheme pay a flat, low rate of GST on their total turnover — with minimal compliance requirements.
What is the GST Composition Scheme?
Under Section 10 of the CGST Act, 2017, businesses below a certain turnover threshold can opt for the Composition Scheme. The key features are:
- ▸Pay GST at a low fixed rate on gross turnover (not on each transaction)
- ▸File GSTR-4 quarterly (instead of monthly GSTR-1 and GSTR-3B)
- ▸No need to issue tax invoices — issue Bill of Supply instead
- ▸Cannot claim Input Tax Credit (ITC)
- ▸Cannot make interstate (inter-state) supplies of goods
Who is Eligible for the Composition Scheme?
Goods dealers and manufacturers:
- ▸Annual aggregate turnover up to ₹1.5 crore (₹75 lakh for North-Eastern and special category states)
- ▸Pay GST at 1% of turnover (0.5% CGST + 0.5% SGST)
Restaurants (not serving alcohol):
- ▸Turnover up to ₹1.5 crore
- ▸Pay GST at 5% of turnover (2.5% CGST + 2.5% SGST)
Service providers (including mixed supplies):
- ▸Turnover up to ₹50 lakh
- ▸Pay GST at 6% of turnover (3% CGST + 3% SGST)
- ▸This is the "Composition Scheme for Service Providers" under CGST Notification 2/2019
Who CANNOT Opt for Composition Scheme?
The following cannot register under the scheme:
- ▸Businesses making inter-state supply of goods
- ▸Suppliers of exempt goods or services (cannot opt if exempt supplies are the core business)
- ▸E-commerce sellers who are required to collect TCS
- ▸Manufacturers of notified goods (ice cream, pan masala, tobacco, aerated water)
- ▸Non-resident taxable persons or casual taxable persons
- ▸Businesses that supply goods not leviable to GST
GST Composition Scheme — Tax Rates at a Glance
| Business Type | Turnover Limit | GST Rate | ITC Available? |
|---|---|---|---|
| Manufacturer/Trader (goods) | ₹1.5 crore | 1% (0.5% C + 0.5% S) | No |
| Restaurant (non-alcohol) | ₹1.5 crore | 5% (2.5% C + 2.5% S) | No |
| Service provider / mixed | ₹50 lakh | 6% (3% C + 3% S) | No |
Benefits of the Composition Scheme
- ▸Low tax rates — 1%, 5%, or 6% vs standard rates of 5%, 12%, 18%, 28%
- ▸Reduced compliance — file GSTR-4 quarterly (one annual summary in GSTR-9A)
- ▸No monthly return filing — saves time and accounting costs
- ▸Simple bookkeeping — flat rate on turnover, no invoice-level ITC tracking
- ▸Cash flow benefit — tax is on actual turnover receipt, not invoice basis
Limitations of the Composition Scheme
❌ No Input Tax Credit — cannot claim GST paid on purchases as credit
❌ Cannot sell interstate — restricted to intra-state sales of goods
❌ Cannot issue tax invoices — buyers cannot claim ITC on your supplies (so B2B customers may prefer GST-registered suppliers)
❌ Cannot supply through e-commerce operators (like Amazon, Flipkart) for goods
❌ Turnover limit — must exit if turnover crosses ₹1.5 crore (goods) or ₹50 lakh (services)
How to Register / Opt for Composition Scheme
For new GST registrations:
Select the Composition Scheme option at the time of registering on gst.gov.in.
For existing GST registrants:
- ▸Log in to gst.gov.in
- ▸Go to Services → Registration → Application to Opt for Composition Scheme
- ▸File Form CMP-02 (intimation to opt in) — due by March 31 for applicability from April 1
- ▸File Form ITC-03 to reverse ITC on stock held on the day of switching
Return Filing under Composition Scheme
- ▸GSTR-4: Quarterly summary return (due 18th of month after quarter-end)
- ▸GSTR-9A: Annual return (due December 31)
- ▸CMP-08: Quarterly challan to pay tax (due 18th of month after quarter-end)
- ▸No GSTR-1 or GSTR-3B — biggest compliance relief
When to Exit the Composition Scheme
You must exit if:
File Form CMP-04 within 7 days of the event triggering the exit.
- ▸Turnover crosses ₹1.5 crore (goods) or ₹50 lakh (services) in the financial year
- ▸You start making inter-state supplies
- ▸You want to start claiming ITC (e.g., purchasing expensive machinery)
Conclusion
The GST Composition Scheme is perfect for small retailers, kirana stores, local restaurants, and small service providers who primarily serve individual customers (B2C) and want to avoid complex GST compliance. However, if your customers are GST-registered businesses who need ITC, the regular GST registration is better.
Biswa Corporate Solutions helps small businesses evaluate the best GST structure and handles registration, return filing, and compliance advisory. Contact us for a free GST consultation.
