Key Takeaways
- The GST Composition Scheme lets eligible businesses with turnover up to Rs 1.5 crore pay GST at 1% to 6% instead of regular rates, with simplified quarterly and annual filings.
- Composition dealers cannot claim Input Tax Credit (ITC), make inter-state supplies, or issue tax invoices.
- Quarterly CMP-08 statements are due by the 18th of the month after each quarter; annual GSTR-4 is due by June 30 of the following financial year (Notification 12/2024-CT).
- Opt in by filing Form GST CMP-02 before March 31. If your turnover crosses the limit, file CMP-04 within 7 days.
If you run a small trading or manufacturing business under Goods and Services Tax (GST), maintaining the full compliance cycle of regular returns, Input Tax Credit (ITC) matching, and detailed invoicing adds operational burden. The Composition Scheme under Section 10 of the Central Goods and Services Tax (CGST) Act, 2017 offers a simpler alternative: lower tax rates, fewer returns, and reduced record-keeping. This guide covers who qualifies, the exact rates, filing obligations, and the restrictions you need to understand before opting in.
Who Is Eligible for the Composition Scheme?
The Composition Scheme is available to registered persons whose aggregate turnover in the preceding financial year did not exceed the prescribed limit (Section 10(1), CGST Act 2017).
Turnover Limits
| Business Type | Turnover Limit |
|---|---|
| Goods manufacturers and traders (general states) | Rs 1.5 crore (Notification 14/2019-CT, w.e.f. 01.04.2019) |
| Goods manufacturers and traders (special category states) | Rs 75 lakh |
| Service providers and mixed suppliers (Section 10(2A)) | Rs 50 lakh (all states) |
Special category states with the Rs 75 lakh limit: Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, and Uttarakhand.
Aggregate turnover includes all taxable, exempt, and export supplies across all GSTINs under the same PAN. It excludes taxes charged under CGST, SGST, UTGST, and IGST.
Who Cannot Opt In
Even if your turnover is below the limit, you cannot opt for composition if you are:
- A casual taxable person or a non-resident taxable person
- A manufacturer of ice cream, pan masala, or tobacco products (Notification 08/2017-CT)
- Making inter-state outward supplies of goods
- Supplying goods through e-commerce operators who are required to collect tax at source under Section 52
- Engaged in supply of goods that are not leviable to tax under the CGST Act
Composition Scheme Tax Rates
Composition dealers pay tax as a fixed percentage of their turnover in the State or Union Territory. The rates are lower than regular GST rates, but you cannot collect this tax from your customers separately.
| Category | CGST Rate | SGST/UTGST Rate | Total Rate |
|---|---|---|---|
| Manufacturers (other than notified goods) | 0.5% | 0.5% | 1% |
| Traders and other eligible suppliers | 0.5% | 0.5% | 1% |
| Restaurant services (Schedule II, para 6(b)) | 2.5% | 2.5% | 5% |
| Service providers (Section 10(2A)) | 3% | 3% | 6% |
Example: A textile trader in Hyderabad with quarterly turnover of Rs 30 lakh pays Rs 30,000 as total GST (Rs 15,000 CGST + Rs 15,000 SGST) instead of calculating GST at 5% or 12% on each invoice.
How to Opt Into the Composition Scheme
Existing Registered Taxpayers
File Form GST CMP-02 on the GST portal before March 31 of the financial year preceding the year in which you want to avail the scheme. For example, to be a composition dealer from FY 2026-27, you must file CMP-02 by March 31, 2026.
The portal blocks the opt-in link once the new financial year starts. You cannot switch mid-year.
New Registrants
You can opt for composition at the time of GST registration itself by selecting the option in Part B of Form GST REG-01.
After Opting In
Once approved, you must:
- Issue Bills of Supply instead of tax invoices
- Mention "Composition Taxable Person, not eligible to collect tax on supplies" at the top of every bill
- Display "Composition Taxable Person" on your signboard at every place of business
Filing Requirements for Composition Dealers
Composition dealers have two filing obligations instead of the monthly GSTR-1 and GSTR-3B that regular taxpayers handle.
1. CMP-08: Quarterly Self-Assessed Statement
| Detail | Requirement |
|---|---|
| What | Quarterly statement of self-assessed tax |
| Frequency | Every quarter |
| Due date | 18th of the month following the quarter |
| Content | Outward supplies, inward supplies attracting reverse charge, and tax payable |
Quarterly due dates:
- April to June quarter: July 18
- July to September quarter: October 18
- October to December quarter: January 18
- January to March quarter: April 18
You can file Nil CMP-08 through SMS if there were no outward supplies, no inward supplies attracting reverse charge, and no tax liability during the quarter.
2. GSTR-4: Annual Return
| Detail | Requirement |
|---|---|
| What | Annual return summarising the full year |
| Due date | June 30 of the following financial year (Notification 12/2024-CT) |
| Late fee | Rs 50 per day (Rs 25 CGST + Rs 25 SGST), maximum Rs 2,000; Nil returns: maximum Rs 500 |
| Prerequisite | All CMP-08 statements for the year must be filed first |
Important: The GSTR-4 due date was extended from April 30 to June 30 starting FY 2024-25 onwards (CGST Notification 12/2024 dated July 10, 2024). For FY 2025-26, the due date is June 30, 2026.
Key Restrictions to Understand
The lower rates and simpler compliance come with trade-offs:
1. No Input Tax Credit. You cannot claim ITC on any purchase. The GST you pay on raw materials, equipment, or services is a cost, not a credit. If your business has high input costs, regular registration may save you more money despite the higher compliance burden.
2. No inter-state supplies. You can only sell within your state or Union Territory. If you receive orders from other states, you must either decline them or exit the composition scheme.
3. No tax invoices. You issue Bills of Supply, which means your buyers cannot claim ITC on purchases from you. Business-to-business (B2B) customers may prefer buying from regular dealers for this reason.
4. No e-commerce supplies. If you sell through platforms like Amazon, Flipkart, or Swiggy (which are required to collect TCS under Section 52), you cannot be a composition dealer.
5. Reverse charge still applies. If you receive supplies from an unregistered supplier that attract reverse charge under Section 9(4), you must pay GST on those supplies at the applicable regular rate, not the composition rate.
What Happens When Your Turnover Crosses the Limit?
If your aggregate turnover exceeds Rs 1.5 crore (or Rs 75 lakh / Rs 50 lakh for applicable categories) at any point during the financial year:
- File Form GST CMP-04 within 7 days from the date the limit is crossed
- You automatically exit the composition scheme from that date
- Start filing regular returns (GSTR-1 and GSTR-3B) from the next applicable period
- Begin issuing tax invoices instead of bills of supply
- You can claim ITC on stock of inputs, semi-finished goods, finished goods, and capital goods held on the date of exit
Example: If your cumulative turnover crosses Rs 1.5 crore on November 15, file CMP-04 by November 22. From December onward, you operate as a regular taxpayer.
Common Mistakes to Avoid
1. Forgetting to include all GSTINs in aggregate turnover. If you have multiple registrations under the same PAN across states, the turnover of all registrations is added together. A business with Rs 80 lakh turnover in Tamil Nadu and Rs 80 lakh in Karnataka has an aggregate turnover of Rs 1.6 crore and does not qualify.
2. Including GST in turnover calculation. Aggregate turnover is calculated exclusive of CGST, SGST, UTGST, and IGST. If your total sales including tax are Rs 1.6 crore but the pre-tax turnover is Rs 1.45 crore, you still qualify.
3. Assuming composition works for e-commerce sellers. Selling through Amazon, Flipkart, or any platform that collects TCS makes you ineligible. Set up a separate GST registration for direct sales if needed.
4. Not filing CMP-08 for zero-activity quarters. Even if you had no business during a quarter, file a Nil CMP-08. Unfiled quarterly statements block your ability to file the annual GSTR-4.
Should You Choose Composition or Regular GST?
The composition scheme works best when:
- Your customers are end consumers (B2C), not businesses that need ITC
- Your input costs are low relative to turnover (so losing ITC does not hurt)
- You value simpler compliance over tax optimisation
- You operate only within one state
Regular registration is better when:
- You sell to other businesses that need ITC on your invoices
- You have significant input costs where ITC recovery matters
- You make or plan to make inter-state sales
- You sell through e-commerce platforms
Let Tax Garden Handle Your Composition Scheme Compliance
Filing CMP-08 every quarter and GSTR-4 annually sounds simple, but missed deadlines mean late fees and potential scrutiny. Tax Garden tracks your turnover against composition limits, files your quarterly statements, prepares your annual return, and alerts you before you cross any threshold. See our GST compliance plans to get started.
