Module 5: Composition Scheme under GST – Simplified Compliance for Small Taxpayers
What is the Composition Scheme under GST?
The Composition Scheme is a simplified tax scheme under GST that allows small taxpayers to pay GST at a fixed rate of turnover and file quarterly returns instead of monthly ones.
This scheme is aimed at:
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Reducing the compliance burden for small businesses.
-
Offering ease of doing business with simple returns and lower tax rates.
Who Can Opt for the Composition Scheme?
✅ Eligibility Criteria:
- Businesses having aggregate turnover up to ₹1.5 crore (₹75 lakhs for North-Eastern states) in the preceding financial year.
- Manufacturers (other than ice cream, pan masala, and tobacco)
- Traders and shopkeepers
- Restaurants (not serving alcohol)
- Service providers (up to a turnover of ₹50 lakhs)
Who Cannot Opt for the Scheme?
❌ Not Eligible If You:
- Deal in inter-state supplies
- Supply goods through e-commerce operators
- Are involved in non-taxable goods/services
- Are a casual taxable person or non-resident taxpayer
Tax Rates Under Composition Scheme
| Business Type | GST Rate |
|---|---|
| Manufacturers | 1% |
| Traders | 1% |
| Restaurants (Non-alcoholic) | 5% |
| Service Providers (up to ₹50 lakh turnover) | 6% (3% CGST + 3% SGST) |
Note: Input Tax Credit (ITC) cannot be claimed under the composition scheme.
Returns to be Filed
| Return Type | Form | Frequency |
|---|---|---|
| GST Return | CMP-08 | Quarterly (tax payment) |
| Annual Return | GSTR-4 | Annually (summary of the year) |
Benefits of Composition Scheme
✔ Lower tax liability
✔ Lesser compliance burden (Quarterly returns instead of monthly)
✔ Simplified invoicing
✔ Better working capital management
Drawbacks / Limitations
✘ Cannot issue tax invoices (You must issue a Bill of Supply)
✘ No Input Tax Credit available
✘ Not applicable for inter-state trade or e-commerce supplies
✘ Not ideal for growing businesses that may cross the threshold
How to Opt-In for the Composition Scheme
- Visit https://www.gst.gov.in
- Login to the GST portal.
- Navigate to: Services > Registration > Application to Opt for Composition Levy
- File the application using Form GST CMP-02 before the beginning of the financial year.
Things to Keep in Mind
- Display “Composition Taxable Person” on all bills and at your place of business.
- File CMP-08 on time each quarter to avoid penalties.
- File GSTR-4 annually by 30th April following the end of the financial year.
- Cannot collect GST from customers; tax is paid out of your profit margin.
Conclusion
The Composition Scheme is a useful option for small businesses seeking lower compliance and simpler taxation. However, businesses must carefully assess their turnover, customer base, and growth plans before opting in. It’s great for local traders, shopkeepers, small service providers, and restaurant owners.
💼 Need Help with GST Compliance or Opting for Composition Scheme?
At Verotus Finlegal Solutions LLP, we help small businesses stay compliant with GST laws, file returns, and make smart tax decisions.
📞 Call Us: +91-7066336680
🌐 Website: www.verotusllp.com
