Learn about the GST Composition Scheme, its rules, turnover limit (₹1.5 Cr/₹75 Lakh), tax rates, and eligibility. Simplify GST compliance for small businesses.
What is the GST Composition Scheme?
The GST Composition Scheme simplifies taxation for small businesses with turnover up to ₹1.5 crore (₹75 lakh for northeastern states), reducing compliance and tax burdens.
GST Composition Scheme: Key Features & Eligibility
-
Eligibility
- Turnover limit: ₹1.5 crore (₹75 lakh for northeastern states).
- ₹50 lakh turnover cap for service providers.
- Not applicable to e-commerce sellers or businesses making interstate sales
-
GST Composition Scheme Tax Rates
- 1% for manufacturers & traders.
- 5% for restaurants (without alcohol).
- 6% for service providers (up to ₹50 lakh turnover).
-
Restrictions
- No Input Tax Credit (ITC) allowed.
- Cannot sell goods/services interstate.
- Must issue a “Bill of Supply” instead of tax invoices.
Benefits of GST Composition Scheme
- Lower Tax Liability – Fixed tax rate (1%-6%) reduces overall tax burden.
- Simplified Compliance – Quarterly filings instead of monthly GST returns.
- Cost Reduction – Fewer compliance costs and lower accounting expenses.
- Focus on Business Growth – Less tax hassle allows more business focus.
- Easier Cash Flow Management – No ITC claim complexity, keeping cash flow steady.
- Ideal for Small-Scale Businesses – Suitable for traders, manufacturers, and restaurants operating within one state.
This scheme helps small businesses remain competitive while adhering to GST regulations with minimal effort.
What is the Turnover Limit for GST Composition Scheme?
- ₹1.5 crore for manufacturers & traders.
- ₹75 lakh for northeastern states & special category states.
- ₹50 lakh for service providers under composition scheme.
Businesses exceeding these limits must switch to regular GST and follow standard tax compliance.
Who Can Opt for GST Composition Scheme?
The GST Composition Scheme applies to small traders, manufacturers, and service providers within specified turnover limits.
GST Composition Scheme Eligibility
- Businesses with turnover up to ₹1.5 crore (₹75 lakh for special category states).
- Service providers with turnover up to ₹50 lakh.
- Not applicable for interstate suppliers or businesses dealing in alcohol, tobacco, or e-commerce sales.
GST Composition Scheme Turnover Limit
-
-
- Basic Turnover Limit: MSMEs having a turnover of up to ₹1.5 crore (₹75 lakh for the special category states) are eligible.
- Service Providers: The scheme is applicable for those service providers who have a turnover up to ₹50 lakh of the previous financial year.
-
Ineligible Transactions
-
-
- Prohibited Supplies: At present, composition dealers cannot register for GST and cannot supply interstate, non-taxable goods like alcohol, and cannot sell through e-Commerce platforms.
-
How to Opt for the GST Composition Scheme?
GST Composition Scheme is applicable for registration at the time of GST registration as well as at the start of a new financial year. This option is available for new applicants at the time of provisional GST registration through Part B of FORM GST REG-01; while the registered taxpayers can fill in for this option through FORM GST CMP-02.
Regarding compliance, goods and service tax returns of CMP-08 for quarterly tax payment and GSTR-4 by the end of the subsequent FY April 30 are submitted.
GST Composition Scheme Registration Process
To opt for the GST Composition Scheme, businesses must follow a specific registration process.
Step-by-Step GST Composition Scheme Registration
- New Applicants – Select the GST Composition Scheme while registering via FORM GST REG-01.
- Existing GST Taxpayers – Submit FORM GST CMP-02 before the financial year begins.
- Quarterly Returns – File FORM CMP-08 by the 18th of the following month after each quarter.
- Annual Return – File FORM GSTR-4 before April 30th of the next financial year
Sector-Specific Applicability of Composition Scheme
It entails nil rated percentage for certain sections of sectors like small services, manufacturers, and restaurants etc. Every sector applies the different tax rates and qualifications meant to simplify the processes, minimise costs, and promote the companies with the turnover that does not exceed specified limits.
-
GST Composition for Service Providers
This Scheme is available for all small service providers whose annual turnover does not exceed ₹50 lakh which is charged at a flat GST rate of 6%. This is available for some service providers depending on the agreement with the carbon trust so as to ease tax issues hence minimising tax compliance. Still, the scheme has been designed in a way that those involved in providing inter-state services or e-Commerce sales are not allowed.
-
GST Composition for Manufacturers
Manufacturers can benefit from the current Composition Scheme that allows a tax rate of 1% of the turnover and easy tax remittance by companies that meet the eligibility criteria of the Scheme. Exempted products like alcohol are also not allowed in this scheme and the qualified manufacturers must be operating in only one state.
-
GST Composition for Restaurants and Hotels
Food businesses that do not sell alcohol can take advantage of the Composition Scheme and charge just 5% in taxes for a less complicated process. Hotels if qualified are required to be located within a single state and have turnover thresholds. Affordability is made possible through this option enables a reduction in compliance and maintenance of reasonable tax charges for the small establishments.
-
GST Composition for Jewellers, Contractors, and Others
- It applies certain restrictions to the jewellers and civil contractors where their conditions are different from the others. They have to carry out sales only within their own state, so that they fit the requirements of the scheme to confine operations to just one state. It is hoped that this restriction will help to reduce the tax complexity for smaller scale operations in these sectors.
- And for the persons having rental income from commercial complexes and buildings, civil contractors of intra-State Government contracts, etc.? They get eligible to receive simple tax rates under the scheme that tends to reduce their business complexities within the state boundaries.
GST Composition Scheme Rules
The GST Composition Scheme also composes of rules and compliance conditions to retain the scheme simple for the businesses. These rules refer to Standard Operating Procedures for pan-consistency across business divisions and keep billing and labelling codes to differentiating composition dealers.
-
Conditions to Avail the Scheme
Taxpayers registered under GST Composition Scheme needed to apply it over all business units claiming the same PAN similarity. They also need to provide a “Bill of Supply” instead of a tax invoice and hang the notice “Composition Taxable Person” at every business point.
-
Forms for GST Composition Scheme
To effectively manage compliance under the GST Composition Scheme, several specific forms must be used:
-
- GST CMP-01: These dealers are required to file details with the GST administration for provisional registration under the GST Composition Scheme.
- GST CMP-02: Submitted at the beginning of the financial year to elect into the scheme.
- GST CMP-08: Necessary for filings of taxes made four times continuously every year.
- GST CMP-04: Submitted to opt out of the scheme if existing is necessary
-
Turnover Limit
The GST Composition Scheme allows manufacturers and traders with an annual turnover of up to ₹1.5 crore and service providers with an annual turnover up to ₹50 lakh to simpler tax returns.
-
Tax Rate
| Category | Tax Rate |
| Manufacturers and Traders | 1% |
| Restaurants | 5% |
| Eligible Service Providers | 6% |
-
GST Composition Scheme Bill Format
In the GST Composition Scheme, the seller has to issue a “Bill of Supply” instead of a tax invoice mentioning “Composition Taxable Person” to stick with the laid norms of the scheme. Find the attached partial gst composition format below,
GST Composition Scheme vs. Regular GST: Key Differences
However, the GST Composition Scheme is slightly easier in terms of tax compliance when compared to the Regular GST Scheme. Compared to the regular GST system where record keeping, multiple returns and an ability to claim Input Tax Credit (ITC) is mandatory, the Composition Scheme has lesser returns and no input tax credit to claim.
| Feature | GST Composition Scheme | Regular GST |
| Compliance | Quarterly CMP-08, simpler filing | Monthly returns, detailed record-keeping |
| Input Tax Credit (ITC) | Not available | Available |
| Tax Rates | 1%, 5%, or 6% | 5%, 12%, 18%, 28% |
| Who Can Opt? | Small businesses with turnover up to ₹1.5 crore | Businesses with any turnover |
| Interstate Sales | Not allowed | Allowed |
| Invoice Type | Bill of Supply | Tax Invoice |
Conclusion on GST Composition Scheme
The GST Composition Scheme simplifies tax compliance for small businesses by offering lower tax rates, reduced paperwork, and quarterly return filing. It is ideal for traders, manufacturers, and service providers operating within a single state. It is preferred for organisations that have low turnover since it is much easier to manage the GST obligations under this regime. Eligibility criteria of the scheme and the simplicity in its execution relieves small enterprises the hassle of dealing with taxes, allowing them concentration on business expansion.
Need help with GST Composition Scheme registration or compliance? Our experts provide hassle-free GST solutions tailored for small businesses. Contact us today for a free consultation!
Frequently Asked Questions (FAQs) on GST Composition Scheme
What is the GST Composition Scheme?
The GST Composition Scheme is a simplified tax scheme for small businesses, allowing them to pay tax at a fixed rate on turnover instead of regular GST rates. It reduces compliance and filing requirements.
Who is Eligible for GST Composition Scheme?
Businesses with an annual turnover of up to ₹1.5 crore (₹75 lakh for special category states) can opt for the Composition Scheme. Service providers can avail of it if their turnover is up to ₹50 lakh.
What is the Difference Between Composition and Regular GST?
The Composition Scheme offers a lower tax rate and less compliance, but businesses cannot claim input tax credit (ITC) or charge GST on invoices. Regular GST requires full compliance, ITC benefits, and monthly/quarterly tax filings.
What is the Composition Limit for GST?
The turnover limit for GST Composition Scheme is ₹1.5 crore for manufacturers and traders and ₹50 lakh for service providers. For Northeastern and hilly states, the limit is ₹75 lakh.
What is Rule 4 of Composition Scheme Under GST?
Rule 4 of the GST Composition Scheme states that a taxable person opting for the scheme must file an intimation in Form GST CMP-02 before the beginning of the financial year and comply with all conditions.
What is the GST Compostion Scheme Bill?
The GST Composition Scheme Bill refers to the legal provisions under the Central Goods and Services Tax (CGST) Act, 2017, that govern the Composition Scheme. It allows small taxpayers to pay GST at a fixed rate with reduced compliance
