GST Composition Scheme - Eligibility, Benefits & How to Opt

The GST Composition Scheme is a simplified tax regime for small businesses registered under GST in India. It lets eligible taxpayers pay GST at a fixed, lower rate on their turnover rather than at regular GST rates and reduces the number of returns and compliance requirements. Under this scheme, businesses file quarterly tax statements and an annual return, making tax compliance easier and less time-consuming. The scheme is meant to support small traders, manufacturers, restaurants, and service providers with modest turnover to manage their GST liabilities in a simpler way while still remaining compliant with the law.

What is the GST Composition Scheme

The GST Composition Scheme is an alternative tax payment option available to small taxpayers whose aggregate annual turnover did not exceed specified limits in the previous financial year. Instead of calculating tax on individual supplies at regular rates, eligible taxpayers pay a fixed percentage of their turnover as GST and file simpler returns.

Eligibility for GST Composition Scheme

To be eligible for the GST Composition Scheme, a taxpayer must satisfy the following core conditions:

1. Turnover Limit

• Annual aggregate turnover must be ₹1.5 crore or less in the previous financial year (the threshold is lower in special category states like North Eastern states and Himachal Pradesh, usually ₹75 lakh).
• For service providers, the turnover limit is often cited around ₹50 lakh, though conditions may vary with notifications.

2. Type of Supplier

• Only regular taxpayers who make intra-state supplies (not interstate) can opt in.
• New taxpayers can choose the scheme at the time of registration if eligible.

3. Ineligible Persons

You cannot opt for the scheme if you are:

• Making inter-state supplies (including exports)
• Supplying goods via e-commerce operators is required to collect tax (like marketplaces)
• A casual or non-resident taxable person
• Supplying goods that are exempt or not taxable under GST
• A TDS/TCS registered person (e.g., tax collectors)
• A manufacturer of notified items such as ice cream, tobacco, or pan masala
• An Input Service Distributor or similar specified roles

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Benefits of the GST Composition Scheme

The Composition Scheme offers some advantages for small taxpayers:

1. Lower Tax Rates

Composition taxpayers pay GST at simplified lower rates (for example, 1% for traders/manufacturers, 5% for restaurants not serving alcohol, and about 6% for eligible services).

2. Reduced Compliance Burden

Instead of monthly return filings, composition dealers typically file a quarterly return (CMP-08) and one annual return (GSTR-4), which simplifies compliance significantly.

3. Easier Accounting and Record-Keeping

With fewer returns and simpler calculations based on turnover, tax administration becomes less time-intensive.

4. Better Cash Flow

Due to the reduced rate and fewer compliance actions, small businesses can maintain higher liquidity for operations.

Limitations of the Composition Scheme

While the scheme is beneficial, it has some limitations to be aware of:

• No Input Tax Credit (ITC): Composition taxpayers cannot claim credit for GST paid on inputs, which can increase costs for some businesses.
• No Tax Invoices: Instead of issuing tax invoices, they must issue Bills of Supply, limiting their ability to show GST charged to customers.
• Restricted Market: Since inter-state supplies are not allowed under the scheme, businesses are generally limited to intra-state sales.
• Reverse Charge Rules: Transactions under reverse charge mechanisms must still be taxed at regular GST rates.

How to opt for the GST Composition Scheme (Online)

Here’s how to opt for the scheme on the GST portal:

Step 1: Log in

• Visit www.gst.gov.in and log in with your GST credentials.

Step 2: Navigate to Registration

• Go to Services - Registration - Application to opt for Composition Levy.

Step 3: Fill Form GST-CMP-02

• The system will auto-populate your GSTIN and business details.
• Select the composition option and agree to the Composition Declaration, confirming that you meet the conditions.

Step 4: Verification and Submission

• Select the Authorised Signatory, enter the place, and click Save.
• Finally, submit the form by choosing Submit with DSC or Submit with EVC as applicable.

Stock Intimation (if applicable)

• Some taxpayers must also file stock details (ITC-03) within the prescribed period when opting for the scheme.

Once submitted, the system classifies the taxpayer as a Composition Dealer without approval delays.

Conclusion

The GST Composition Scheme is a practical option for small and emerging businesses to manage GST compliance with lower tax rates and reduced administrative burden. By meeting the turnover and eligibility conditions, taxpayers can benefit from simplified compliance (quarterly filings, a single annual return) while keeping their tax liabilities predictable. However, careful consideration is needed since the scheme restricts inter-state business and does not allow input tax credits.