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Composition Scheme under GST: for Small Businesses

Are you a small business owner? If yes, the Composition Scheme under GST might just be the relief you’re looking for.

This special scheme is designed to make tax compliance easier for small businesses by allowing them to pay a fixed percentage of turnover as tax and file fewer returns.

In this article, we’ll break down what the Composition Scheme is, who can opt for it, the benefits, limitations, and common doubts - all in simple language.

What is the Composition Scheme under GST?

The Composition Scheme is a simplified tax scheme under the Goods and Services Tax (GST) in India. It is meant for small taxpayers with lower turnover, who want to avoid the complexities of GST returns, invoices, and high compliance.

Instead of charging GST on every sale and claiming input tax credit, businesses under the composition scheme pay a flat rate of tax on their total turnover.

Who Can Opt for the Composition Scheme?

Not every business is eligible for this scheme. Here are the key conditions:

• Your aggregate turnover should be up to ₹1.5 crore in most states (₹75 lakh for some North-Eastern states).
• You can be a trader, manufacturer, or restaurant owner (not serving alcohol).
• Service providers (other than restaurants) can also opt, but only if their turnover is up to ₹50 lakh.

You cannot opt for the composition scheme if:

• You’re engaged in interstate supply of goods or services.
• You sell goods through e-commerce platforms like Amazon or Flipkart.
• You supply non-taxable goods or services like alcohol.
• You are a casual taxable person or non-resident.

Tax Rates under Composition Scheme

Under the Composition Scheme, GST is charged at a fixed rate on turnover, not on individual sales. The rates are:

Business Type	GST Rate
Manufacturers	1%
Traders (Dealers)	1%
Restaurants (not serving alcohol)	5%
Service providers (under special composition)	6%

Note: The taxpayer cannot collect GST from customers under this scheme.

Benefits of the Composition Scheme Why Choose Composition Scheme?

Here’s why many small businesses prefer this scheme:

• Lower tax rates – Pay a fixed, reduced GST rate.
• Less paperwork – Fewer returns and simpler records.
• No need to issue tax invoices – A simple bill of supply is enough.
• Cost savings – Save on compliance and accounting costs.
• Peace of mind – Less stress with easier tax rules.

Limitations of the Composition Scheme

While the scheme has benefits, it also comes with some restrictions:

• No Input Tax Credit (ITC) – You can’t claim credit for GST paid on purchases.
• Can’t do interstate sales – Business is restricted to within the home state.
• Can’t collect GST from customers – You bear the tax burden.
• Not allowed on e-commerce platforms – Selling on Amazon, Flipkart, etc., is not permitted under this scheme.

How to Register for Composition Scheme under GST

You can opt for the Composition Scheme while:

• Applying for fresh GST registration, or
• Filing Form CMP-02 on the GST portal if you’re already registered under regular GST.

The option should be chosen at the beginning of the financial year.

Once opted, you must:

• Display “Composition Taxable Person” on your invoices and at your place of business.
• Use bill of supply instead of tax invoice.

Returns and Compliance for Composition Dealers

Even though the compliance is simpler, a few things still need to be done:

• File GSTR-4 annually (earlier it was quarterly).
• File CMP-08 quarterly to declare self-assessed tax.

Maintain basic purchase and sales records.

How to Opt In or Opt Out

• Opt In: File CMP‑02 before the start of the financial year or during registration.
• Opt Out: File CMP‑04 within 7 days if turnover exceeds limit or conditions change; also file ITC‑03 within 60 days if claiming input credit on leftover stock.

Compliance Made Simple

Requirement	What You Do	Due Date
Quarterly tax return	CMP‑08 + payment	18th of month after quarter ends
Annual return	GSTR‑4	30th April next FY
Annual statement	GSTR‑9A (if required)	31st December next FY

Should You Opt for the Composition Scheme?

It depends on your type of business and turnover. If you're a small shopkeeper, trader, manufacturer, or restaurant owner operating within your state, this scheme can save you time and effort.

However, if:

• You sell online,
• Want to grow interstate,
• Or need input tax credit,

then the regular GST scheme may be a better choice.

FAQs on Composition Scheme under GST

What is the turnover limit for the Composition Scheme?

₹1.5 crore in most states and ₹75 lakh for some North-Eastern states. For service providers, the limit is ₹50 lakh.

Can a service provider opt for the Composition Scheme?

Yes, if the total turnover is below ₹50 lakh and services are eligible.

Can I make interstate sales under the Composition Scheme?

No, only intra-state (within the same state) sales are allowed.

Can I sell on Amazon or Flipkart under this scheme?

No, businesses selling through e-commerce operators cannot opt for the composition scheme.

Do I have to issue tax invoices?

No, you must issue a bill of supply and not charge GST to customers.

Can I claim Input Tax Credit in Composition Scheme?

No, ITC is not allowed under this scheme.

What returns do composition dealers need to file?

• CMP-08 quarterly
• GSTR-4 annually

When can I opt for the Composition Scheme?

At the time of new registration or by filing Form CMP-02 at the start of the financial year.

Final Thoughts

The Composition Scheme under GST is a great option for small businesses that want to focus more on running their business and less on GST compliance. It offers lower tax rates and simpler processes — but comes with some limitations.

Before opting in, evaluate your business needs, growth plans, and tax preferences. And if in doubt, consult your tax advisor to make the right move.

Want to learn more about GST, tax-saving tips, or registration guides? Explore our latest blog posts to stay informed and compliant.