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The GST Composition Scheme is a simplified compliance option under Goods and Services Tax for small taxpayers, designed to ease the tax burden and reduce paperwork. It allows eligible businesses to pay GST at a fixed, lower rate on their turnover and enjoy hassle-free quarterly payments and annual filings. Read more to know about the scheme, including eligibility rules, turnover limits, applicable tax rates, benefits, and compliance requirements — making it easier for you to decide if the Composition Scheme is the right fit for your business.
GST Composition scheme is an alternative taxation levy under GST. Gst Composition Scheme is a simplified tax compliance mechanism introduced under CGST Act 2017, to ease the tax burden and compliance requirement for small business. It is an optional scheme introduced to benefit the micro, small, and medium enterprises (MSMEs) that find regular GST compliance, such as filing monthly returns and managing input tax credits, burdensome and costly.
This will save them from the hustle of lengthy tax compliances like maintenance of detailed records, the filing of multiple returns monthly etc. Also, the procedures in terms of the issue of invoices etc are very minimal and simplified.
It allows eligible taxpayers to pay GST at a fixed percentage of their turnover and file returns with minimal formalities. The tax rate is comparatively lower than those prescribed for normal taxpayers.
A taxpayer having turnover below Rs 1.5 Cr in the preceding financial year can opt for the composition tax levy in the current year. In case of North-Eastern states and Himachal Pradesh, the limit is Rs 75 lakhs. As per the CGST (Amendment) Act, 2018, a composition dealer can also supply services to an extent of ten percent of turnover, or Rs.5 lakhs, whichever is higher.
Note: CBIC has notified the increase to the threshold limit from Rs 1.0 Crore to Rs. 1.5 Crores.
The person having a turnover above Rs 1.5 crore (in general) or above Rs. 75 lakh (for notified states) cannot opt for composition scheme. Apart from this, the following categories of suppliers cannot avail the benefit of composition
| Goods | Tariff Item / Chapter |
|---|---|
| Ice cream including other ice (with or without cocoa) | 2105 00 00 |
| Pan Masala | 2106 90 20 |
| Tobacco and its manufactured substitutes | 24 |
In Goods and Service Tax varied composition rates have been prescribed for different suppliers. The following are the tax rates under composition scheme as amended by Notification Number 1/2018 – Central tax
| Category | Turnover Limit | Tax Rate (CGST + SGST) | Tax Base |
|---|---|---|---|
| Manufacturers | ≤ ₹1.5 crore | 1% (0.5% + 0.5%) | On total turnover (including exempt supplies) |
| Traders of Goods | ≤ ₹1.5 crore | 1% (0.5% + 0.5%) | On taxable turnover only |
| Restaurants (No Alcohol) | ≤ ₹1.5 crore | 5% (2.5% + 2.5%) | On total turnover |
| Service Providers | ≤ ₹50 lakh | 6% (3% + 3%) | On total turnover (Section 10(2A)) |
A composite supplier has a different and reduced set of compliance when compared with the normal taxpayer. The same can be better understood through a comparison as under
| Composite Supplier | Normal Supplier | |
|---|---|---|
| Rate of GST | A lower tax of rate up to the maximum of 5% has been prescribed. | A higher rate of tax upto 28% has been notified in this case. |
| Input Tax Credit | Cannot take benefit of ITC on inward supply (purchases) | ITC can be availed to set off the output tax liability |
| Pass on the credit and incidence of the tax | The composite supplier cannot pass on the credit of tax to the recipient. | The normal taxpayer can pass on the credit as well as incidence of taxes payable onto the recipient |
| Annual Return | Annual summary of the transaction is to be filed in form GSTR 9A | Annual summary of the transaction is to be filed in form GSTR 9 |
| Monthly / Quarterly Returns | One quarterly return i.e. GSTR 4 needs to be filed by composition taxpayer | Three monthly returns need to be filed by a normal supplier namely GSTR 1, GSTR 2 & GSTR 3/ 3B |
| Inter-State Supply | Cannot make interstate supply | Can make interstate supply without restrictions. |
All good things come with a price so does Composition scheme. With its manifold benefits composition has the following disadvantages
If a taxpayer falls in any of the below mentioned criteria, it will result in cessation of composition levy for him
Login into the GST portal and file GST SMP-02 with the government. This intimation should be given at the beginning of every Financial Year by a dealer wanting to opt for Composition Scheme. Read more here to know how to file GST Composition return online.
| Component | Details |
|---|---|
| Tax Payment Frequency | Quarterly |
| Form to be Filed | CMP-08 (for payment of tax) |
| Due Date | 18th of the month following the end of each quarter |
| Final Return | GSTR-4 (annually by 30th April of next FY) |
| Mode of Payment | Online via GST portal using credit ledger, cash ledger, or challan |
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It's a simplified GST scheme for small taxpayers to pay tax at a fixed rate on turnover and file fewer returns.
| Category | Tax Rate (CGST + SGST) |
|---|---|
| Manufacturers | 1% (0.5% + 0.5%) |
| Traders of Goods | 1% (0.5% + 0.5%) |
| Restaurants (No Alcohol) | 5% (2.5% + 2.5%) |
| Service Providers | 6% (3% + 3%) |
No. They issue a Bill of Supply and cannot charge GST on invoices.
No, ITC is not available under this scheme.
Yes, by filing Form CMP-04 when the turnover exceeds the limit or by voluntarily opting out.
No, interstate outward supplies are not allowed (except for service providers under 10(2A)).
