GST Composition Scheme: A Comprehensive Guide

The GST Composition Scheme is a simplified tax compliance technique used by the Indian government to reduce the load on small taxpayers. Instead of the regular Goods and Services Tax (GST), qualifying firms can choose this system and pay a set nominal rate on their revenue. This technique lowers compliance expenses and paperwork while maintaining tax compliance.

A Chartered Accountant (CA) firm assists businesses with verifying eligibility, filing composition scheme returns, and maintaining GST compliance. Seeking expert advice from a CA firm may help businesses make more informed decisions and avoid penalties.

What is GST Composition Scheme?

The GST Composition Scheme is a simplified tax structure introduced under the Goods and Services Tax (GST) Act to reduce compliance for small businesses. Instead of standard GST rates, taxpayers under this scheme pay a fixed percentage of their turnover in tax. This scheme is especially useful to dealers, manufacturers, and service providers with low turnover.

Compared to regular GST taxpayers, who need to maintain major records, composition traders have limited compliance responsibilities. However, they are unable to submit tax invoices to consumers and must explicitly disclose that they are registered under the composition scheme.

Eligibility Criteria for GST Composition Scheme

To opt for the Composition Scheme under GST, businesses must meet the following eligibility criteria:

• Annual turnover must be within the prescribed limit (discussed in detail below).
• Businesses must operate within the same state (interstate trade is not allowed).
• E-commerce sellers are not eligible to opt for this scheme.
• Service providers can now apply, but with specific conditions.
• Manufacturers of certain restricted goods (e.g., tobacco, pan masala, ice cream) cannot opt for the scheme.

GST Composition Scheme Tax Rates

The tax rates under this scheme vary based on the type of business:

Business Type	Tax Rate
Manufacturers & Traders	1%
Restaurants (without alcohol)	5%
Service Providers	6%

GST Composition Scheme Rules

Businesses opting for this scheme must adhere to certain rules:

• They cannot collect GST from customers.
• No inter-state sales are allowed.
• No Input Tax Credit (ITC) can be claimed.
• Must file quarterly GST returns (CMP-08) and an annual return (GSTR-4).
• Must mention ‘Composition Taxable Person’ on invoices.

Composition Scheme GST Return Filing Process

• CMP-08: Quarterly statement to pay tax.
• GSTR-4: Annual return with details of turnover and tax paid.
• GSTR-9A: Optional annual summary return for composition taxpayers.

Advantages of the GST Composition Scheme

• Simplified Tax Filing: Lesser compliance burden.
• Lower Tax Liability: A fixed tax rate reduces costs.
• Ease of Doing Business: Reduced record-keeping requirements.

Disadvantages of the GST Composition Scheme

• No ITC Benefits: Businesses cannot claim input tax credits.
• Limited Expansion Scope: Inter-state transactions are restricted.
• Not Suitable for Large Businesses: Best suited for small-scale businesses.

How to Register for GST Composition Scheme?

To register for the GST Composition Scheme, follow these steps:

• Start filing CMP-08 quarterly and GSTR-4 annually.
• Login to the GST Portal (www.gst.gov.in).
• Navigate to ‘Services’ > ‘Registration’ > ‘Application to Opt for Composition Levy’.
• Fill in the details and submit Form CMP-02.
• Confirmation from GST Authorities will be provided.

FAQs on Composition Scheme in GST​