The GST composition scheme is designed for small businesses that want lower tax and simpler compliance. Instead of charging GST on every invoice and filing monthly returns, a composition dealer pays a small fixed percentage of turnover and files one statement every quarter.
Key takeaways
- Manufacturers, traders and restaurants can opt up to ₹1.5 crore turnover; service providers up to ₹50 lakh.
- You issue a bill of supply, not a tax invoice, and cannot collect GST from customers.
- No input tax credit, and generally no inter-state sale of goods.
- CMP-08 is due on the 18th after each quarter; GSTR-4 is due 30 April.
Who can opt for the GST composition scheme?
| Category | Turnover limit (previous FY) | Tax rate (CGST + SGST) |
|---|---|---|
| Manufacturers | ₹1.5 crore (₹75 lakh in special category states) | 1% |
| Traders | ₹1.5 crore (₹75 lakh in special category states) | 1% of taxable turnover |
| Restaurants not serving alcohol | ₹1.5 crore (₹75 lakh in special category states) | 5% |
| Service providers and mixed suppliers | ₹50 lakh | 6% |
Who cannot opt?
- Businesses making inter-state supplies of goods
- Manufacturers of notified goods such as ice cream, pan masala and tobacco products
- Casual taxable persons and non-resident taxable persons
- Suppliers of goods through e-commerce operators that collect TCS (limited relaxations exist for small suppliers)
- Suppliers of goods not taxable under GST
Example: how much tax will you save?
A kirana store with annual sales of ₹1 crore pays 1% = ₹1,00,000 under composition. Under the regular scheme it would charge 5% or 18% depending on items and pay tax after input credit, plus spend more on monthly compliance. For B2C retailers with thin margins, composition often works out cheaper. B2B sellers usually stay regular so their buyers can claim credit.
Rules every composition dealer must follow
- Issue a bill of supply, not a tax invoice, and do not collect GST from customers.
- Write “Composition taxable person, not eligible to collect tax on supplies” on bills and the signboard.
- No input tax credit on purchases.
- Pay tax under reverse charge where applicable, at normal rates.
Returns under the composition scheme
| Return | Purpose | Due date |
|---|---|---|
| CMP-08 | Quarterly statement and tax payment | 18th of the month after the quarter |
| GSTR-4 | Annual return | 30 April after the financial year |
Filing360 files these on composition GST return filing if you would rather not track the calendar yourself.
How to opt in and out
- Existing taxpayers: file Form GST CMP-02 before the start of the financial year.
- New registrants: select composition in Form GST REG-01 when you apply for GST registration.
- To leave voluntarily: file Form GST CMP-04. You must leave automatically once turnover crosses the limit, and file CMP-04 within 7 days.
Pros and cons
| Pros | Cons |
|---|---|
| Low tax rate on turnover | No input tax credit |
| Quarterly instead of monthly returns | No inter-state sale of goods |
| Simpler accounts | B2B buyers cannot claim credit, so you may lose business customers |
Compare this with regular GSTR-1 and GSTR-3B before you opt in.
When composition is a bad fit
Skip composition if more than a slice of your sales is B2B — your buyer cannot take credit, so they will ask for a discount equal to the GST they just lost. Skip it if you will sell to another state, list goods on a TCS marketplace, or already hold large GST on purchases (rent, stock, equipment) that you would rather credit. A restaurant at 5% can still be right; a growing D2C brand usually is not.
Bill of supply, in practice
The bill of supply shows value but not GST. Print the composition declaration on every copy and on the signboard. If you accidentally issue a tax invoice and collect GST, you still have to deposit that tax and you can create a mismatch for the buyer. Train whoever raises bills before the first sale of the year.
What to do this week
- Estimate last year’s turnover and this year’s mix of B2C versus B2B.
- If you want composition from 1 April, CMP-02 has to be in before the year starts.
- If you are already in and approaching the limit, plan CMP-04 and stock-credit before you cross it.
Worked scenario
Two partners run a neighbourhood bakery at ₹90 lakh turnover, almost all walk-in. Composition at 5% (restaurant) or 1% (if classified as traders of goods) is the conversation to have with a CA using actual HSN and whether they serve from the premises. If they start supplying other cities through a TCS marketplace, composition usually ends. Meanwhile a B2B packaging supplier at the same turnover stays on the regular GST composition scheme alternative — regular GSTR-1 and GSTR-3B — because their buyers need credit.
Related reading: how to get GST number online and GSTR-1 vs GSTR-3B.
Frequently asked questions
Can a composition dealer sell on Amazon?
Generally no, because suppliers of goods through e-commerce operators collecting TCS cannot opt for composition, subject to the limited relaxations notified for small suppliers.
Can I switch back to the regular scheme mid-year?
Yes, by filing CMP-04. You can then claim credit on stock held on that date.
What if I miss the CMP-08 due date?
Interest at 18% applies on late tax, plus late fee for GSTR-4.
Can I claim ITC on stock when I leave composition?
Yes, on stock, semi-finished and finished goods held on the day you switch to the regular scheme, subject to the conditions in the GST rules.
Not sure composition suits you? Book a free consultation and we will compare both schemes.
