What is the GST Composition Scheme?
The GST Composition Scheme is a simplified tax scheme designed for small taxpayers under Section 10 of the CGST Act. It allows eligible businesses to pay GST at a fixed percentage of turnover instead of the regular rates, with significantly reduced compliance requirements.
Eligibility Criteria
The following taxpayers can opt for the Composition Scheme:
- Manufacturers, traders, and restaurants with annual turnover up to ₹1.5 crore (₹75 lakhs for special category states like North-Eastern states, Himachal Pradesh, Uttarakhand)
- Service providers and mixed suppliers with annual turnover up to ₹50 lakhs
Who Cannot Opt for Composition Scheme?
- Suppliers making inter-state outward supplies
- Suppliers through e-commerce operators
- Manufacturers of ice cream, pan masala, or tobacco
- Casual taxable persons and non-resident taxable persons
- Businesses involved in import of goods
Composition Scheme Tax Rates
| Type of Business | CGST Rate | SGST Rate | Total Rate |
|---|---|---|---|
| Manufacturers | 0.5% | 0.5% | 1% |
| Traders (goods suppliers) | 0.5% | 0.5% | 1% |
| Restaurants (not serving alcohol) | 2.5% | 2.5% | 5% |
| Service providers (Section 10(2A)) | 3% | 3% | 6% |
Benefits of the Composition Scheme
- Lower tax rates – Pay 1% to 6% instead of standard 5%–28%
- Simplified returns – File only one quarterly return (CMP-08) and annual return (GSTR-4)
- No detailed invoicing – Issue a Bill of Supply instead of a tax invoice
- Reduced compliance burden – No need to maintain detailed records of outward supplies
- Better cash flow – Lower tax outgo improves working capital for small businesses
Restrictions Under Composition Scheme
- Cannot charge GST on invoices (must issue Bill of Supply)
- Cannot claim Input Tax Credit on purchases
- Cannot make inter-state sales
- Cannot sell through e-commerce platforms
- Buyers cannot claim ITC on purchases from composition dealers
How to Opt for Composition Scheme
For Existing Taxpayers
File GST CMP-02 on the GST portal before the start of the financial year (by March 31). The option is effective from April 1.
For New Registrations
Select the composition option while filling the GST registration application (GST REG-01) and file GST CMP-02 within 30 days of registration.
CMP-08: Quarterly Payment Statement
Composition dealers must file CMP-08 by the 18th of the month following each quarter with self-assessed tax payment. The quarterly periods and due dates are:
- April–June: 18th July
- July–September: 18th October
- October–December: 18th January
- January–March: 18th April
Composition Scheme vs Regular GST
Choose the composition scheme if your customers are primarily end consumers who do not need ITC. If your buyers are businesses that require ITC, regular GST registration is more suitable as composition dealers cannot pass on tax credit.
Manage Composition GST with FileWithUs.ai
FileWithUs.ai supports both regular and composition taxpayers. Generate Bills of Supply, track your turnover against the composition limit, and get reminders for CMP-08 quarterly filings — all from a single dashboard designed for small Indian businesses.
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