October 06, 2025
7 mins read
If you are a small business owner struggling with complex GST filings, the GST Composition Scheme might be the relief you need. Designed for businesses with lower turnover, the scheme offers a simpler way to pay GST with fewer returns, easier compliance, and lower tax liability.
This guide will explain what the GST Composition Scheme is, who qualifies, how to register, the tax rates, the invoice format, and key benefits. Whether you're a trader, manufacturer, or service provider, understanding this scheme, along with different types of GST, can help you make better financial decisions.
The GST Composition Scheme is a simplified tax scheme for small taxpayers whose annual turnover is not more than certain prescribed limits. It allows eligible businesses to pay GST at a fixed rate based on turnover instead of the regular GST rates.
The scheme reduces compliance by requiring only one quarterly return (CMP-08) and an annual return (GSTR-4). Under this scheme, you cannot claim ITC or Input Tax Credit, and you must issue a Bill of Supply instead of a tax invoice.
You can choose the GST Composition Scheme if your annual aggregate turnover is not more than ₹1.5 crore for goods or ₹50 lakh for services. For certain states like Himachal Pradesh and the North-Eastern states, the turnover limit is set at ₹75 lakh.
If you run multiple businesses under the same PAN, the total turnover of all must be considered. Also, service providers can avail of the scheme if their services do not exceed 10% of the turnover or ₹5 lakh, whichever value is higher.
Not every business can benefit from the GST Composition Scheme. Certain categories are restricted from joining due to the nature of their operations. The following businesses or individuals are not eligible for the GST Composition Scheme:
Manufacturers of pan masala, ice cream, or tobacco
Businesses making inter-state or exempt supplies
Casual taxable persons or non-resident taxable persons
Businesses supplying goods through e-commerce platforms where TCS applies
Any supplier notified by the Government based on GST Council recommendations
If you fall into any of the above groups, you are not eligible for the scheme. You can use a GST Calculator to estimate your tax liabilities under the regular GST regime to prepare your GST invoice and file returns.
To be eligible for the GST Composition Scheme, you must meet these conditions:
You cannot claim ITC or Input Tax Credit for purchases made while under the scheme.
According to the Composite Scheme rules, you are not allowed supply goods like alcohol which are not taxable under GST.
You must pay tax at standard rates on reverse charge transactions.
All businesses under the same PAN must either collectively opt in or stay out of the scheme.
You must display "composition taxable person" at all business premises.
All bills of supply must include the phrase "composition taxable person."
You can supply services up to 10% of turnover or ₹5 lakh, whichever is higher.
You can opt for the GST Composition Scheme if your annual turnover from the supply of goods does not exceed ₹1.5 crore in the previous financial year.
If your business operates in states like Manipur, Mizoram, Sikkim, Tripura, and others classified as special category, the turnover limit is set at ₹75 lakh.
Service providers are eligible for the scheme if their total turnover in the preceding financial year is ₹50 lakh or less.
If you deal in both goods and services, you can apply for the scheme as long as turnover from goods is up to ₹1.5 crore and services are within ₹5 lakh or 10% of total turnover, whichever is higher.
As a composition dealer under GST, you will need to fill out specific forms for registration, compliance, and reporting. These forms help you manage entries like opting into the scheme, declaring stock, and handling notices. The table below outlines each form and its purpose for easy reference:
Form | Purpose |
GST CMP-01 | To opt in by provisional GST registrants |
GST CMP-02 | For existing GST registrants opting into the scheme |
GST CMP-03 | Submit stock details and inward supplies |
GST CMP-04 | Inform withdrawal from the scheme |
GST CMP-05 | Show cause notice from authorities |
GST CMP-06 | Response to show cause notice |
GST CMP-07 | Order issued based on notice |
GST REG-01 | Register under the composition scheme |
GST ITC-01 | Declare inputs in stock on exiting the scheme |
GST ITC-03 | Declare available input tax credit |
The scheme is available for specific types of businesses, with some restrictions:
Cannot sell through e-commerce operators collecting TCS
Non-resident and casual taxable persons are excluded
Ice cream, pan masala, and tobacco manufacturers are not eligible
Cannot purchase goods from unregistered dealers (with exceptions)
Cannot supply goods and services that are exempt under GST
Manufacturers & Traders: 1% of turnover
Restaurants: 5% of turnover
Service Providers: 6% of turnover (where applicable)
Input Tax Credit is not allowed. Tax must be paid from your own funds.
The bill should clearly display the title "GST Composition Scheme Bill" or "Composition Scheme Invoice" at the top.
You must include your business name, full address, GSTIN Number, and any other relevant registration numbers.
Include the customer's name, address, and GSTIN if the transaction is business-to-business (B2B).
Make sure the bill has a unique invoice number along with the date it was issued.
List each good or service supplied, along with its description, quantity, rate, and total price.
You must clearly state that the invoice is issued under the GST Composition Scheme.
The bill should show the complete amount payable after including all applicable amounts and adjustments.
Mention the payment method accepted and any due dates or credit terms agreed upon.
Ensure the bill contains all legally required disclosures or disclaimers as per GST law.
The invoice should be signed or stamped by an authorized person from your business to confirm its authenticity.
You can opt for the GST Composition Scheme either when registering as a new taxpayer or before the start of a financial year as an existing taxpayer.
If you are registering for GST for the first time, you can opt for the GST Composition Scheme by selecting it during the registration process. This is done through Form GST REG-01 on the GST portal while applying for a new GSTIN Number. Make sure your eligibility matches the turnover and business conditions prescribed under the scheme.
If you are already registered under the regular GST scheme, you must submit Form GST CMP-02 to opt into the Composition Scheme. This form must be filed before the start of the financial year in which you wish to apply the scheme. The option is not available mid-year, so timely application is essential.ā
A composition dealer must issue a Bill of Supply instead of a GST invoice (tax invoice) since they are not permitted to collect GST from customers. This bill must include the declaration: "Composition taxable person, not eligible to collect tax on supplies."
As a composition dealer, you are required to pay GST using a simplified process. However, you still need to follow specific payment rules related to supplies, reverse charges, and purchases from unregistered dealers.
Under the GST Composition Scheme, you are not allowed to collect GST from customers. Instead, you must calculate and pay a fixed percentage of your total turnover as tax directly from your own funds. This amount varies depending on your business type—typically 1% for traders and manufacturers, and 5% for certain service providers.
You are liable to pay GST under the reverse charge mechanism for certain transactions where the tax responsibility shifts from the supplier to the recipient. Even as a composition dealer, you must pay this tax separately at the applicable rates and cannot use your composition tax for these payments.
Initially, composition dealers were required to pay GST on purchases made from unregistered suppliers. However, as of February 1, 2019, this provision has been suspended and is not currently applicable unless the government notifies it again in the future. Therefore, you do not need to pay GST on such purchases unless specifically required.
As a composition dealer under the GST Composition Scheme, you are required to file Form CMP-08 on a quarterly basis, by the 18th of the month following the end of each quarter. This form allows you to pay self-assessed tax for your turnover. In addition, you must submit Form GSTR-4 as an annual return by April 30 of the succeeding financial year, which summarises your quarterly filings. The previously applicable Form GSTR-9A, meant for annual returns, has been waived for FY 2017–18 and FY 2019–20. These simplified returns reduce compliance while ensuring your tax obligations remain up to date.
Reduced paperwork and fewer returns
Lower tax burden
More working capital available due to reduced tax outflow
No inter-state supply allowed
Input Tax Credit is not available
Cannot supply non-taxable goods or use e-commerce portals for sales
If your business meets the turnover limits and operates mostly within your state, the GST Composition Scheme can make compliance much easier for you. It is designed to help small business owners like you save time, reduce paperwork, and pay GST at lower rates. Make sure to understand the conditions and rules before enrolling, so you can decide if this is the right option for your business.
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Check your GST portal dashboard. If registered, your status will show "Composition Taxpayer," and CMP-08 will appear in the return filing section.
Log in to the GST portal using your GSTIN Number. Under the taxpayer dashboard, check "My Profile" to view your scheme status.
No, inter-state sales are not allowed under the GST Composition Scheme. You must conduct all transactions within your registered state.
No. A composition dealer can only issue a Bill of Supply and not a tax invoice, as GST cannot be collected from customers.
If your turnover exceeds the limit, you must switch to the regular GST scheme and inform the authorities. You will also need to pay tax under the regular method from that day onward.
No, sellers supplying goods through e-commerce platforms where TCS is applicable cannot register under the GST Composition Scheme.
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