What is the GST Composition Scheme?
It’s a simpler tax scheme under GST designed for small businesses. Instead of paying GST at full rates and doing loads of paperwork, eligible businesses can pay a fixed low tax based on their turnover.
Why was the Composition Scheme introduced?
To reduce the compliance burden on small taxpayers and make it easier for them to stay GST-compliant without hiring big tax teams.
Who can opt for the GST Composition Scheme?
Any business whose annual turnover is less than ₹1.5 crore can opt for this scheme. However, in North-Eastern states and Himachal Pradesh, the limit is ₹75 lakh.
Are service providers also allowed to opt in?
Yes, from Feb 1, 2019, service providers can also opt for this scheme if their turnover is up to ₹50 lakh.
How do I know if a business is under the Composition Scheme?
Use the GST Search Tool online. Enter the GSTIN, and check the ‘Taxpayer Type’ in the result—it’ll show if the business is under composition.
Is the turnover limit based on one business or all my businesses?
The total turnover of all businesses under the same PAN is counted.
Can a trader under this scheme offer services too?
Yes, up to 10% of turnover or ₹5 lakh, whichever is higher.
How do I opt for the Composition Scheme?
You need to file Form GST CMP-02 on the GST Portal, ideally at the start of the financial year.
Can I opt for this scheme anytime?
No, it must be opted for at the beginning of the financial year. Mid-year applications aren't allowed unless it's a new registration.
What type of bill does a composition dealer issue?
A Bill of Supply, not a tax invoice. They can’t collect GST from customers.
Do I need to mention anything special on my bills?
Yes, you must write:
“composition taxable person, not eligible to collect tax on supplies” clearly on all bills.
Are there any businesses that can’t opt for this scheme?
Yes. You can’t opt in if you are:
· Manufacturing ice cream, tobacco, or pan masala
· Supplying goods inter-state
· Supplying exempt goods
· A casual taxable person or non-resident taxable person
· Selling via e-commerce platforms that collect TCS
What are the GST rates under this scheme?
|
Type of Business |
CGST |
SGST |
Total |
|
Manufacturers & Traders |
0.5% |
0.5% |
1.0% |
|
Restaurants (no alcohol) |
2.5% |
2.5% |
5.0% |
|
Other service providers |
3.0% |
3.0% |
6.0% |
Can I claim input tax credit under Composition Scheme?
No. Input Tax Credit (ITC) is not allowed in this scheme.
Can I deal in alcohol and be in the scheme?
No, alcohol is outside GST. You can’t supply non-taxable goods like alcohol under this scheme.
How do I pay GST under the Composition Scheme?
You pay tax out of your own funds based on your turnover. You cannot charge customers.
Do I need to pay tax on reverse charge?
Yes, you have to pay GST at regular rates under Reverse Charge Mechanism (RCM).
What returns do I need to file as a composition dealer?
You need to file:
CMP-08 (quarterly) – by the 18th of the month following the quarter
GSTR-4 (annually) – by 30th June of the next financial year
Is GSTR-9A also needed?
It was applicable earlier but waived off for FY 2017-18 and FY 2019-20. It's not required now for most composition dealers.
Do I need to maintain detailed books?
No, you’re not required to maintain detailed records like regular taxpayers.
What are the benefits of opting for this scheme?
· Less paperwork and compliance
· Lower tax rates
· Better cash flow and liquidity
· No need to worry about collecting GST
What are the drawbacks?
· You can’t make inter-state sales
· No Input Tax Credit
· You can’t sell on e-commerce platforms
· You can’t deal in non-taxable goods like alcohol
Can I sell through Amazon or Flipkart under this scheme?
No, composition dealers cannot sell through e-commerce platforms that collect TCS.
What happens if my turnover crosses the limit during the year?
You’ll need to switch to the regular GST scheme and follow standard GST rules.
Do I need to display anything at my shop or office?
Yes. You must display a notice saying:
“Composition Taxable Person” at your business premises.
Do I need to display this on every invoice?
Yes, mention “composition taxable person” on each Bill of Supply.
What happens if I wrongly collect GST from customers?
It’s not allowed. You may face penalties. Tax has to be paid from your own pocket.
Can I switch from regular to composition and vice versa?
Yes, but only at the beginning of the financial year, not mid-year.
Is the tax calculated on total turnover or profit?
It’s based on turnover, not profit.
Are there any special rules for traders under this scheme?
Yes, for traders, turnover includes only taxable supplies of goods.
Do I need to pay GST if I buy from unregistered dealers?
Only on specified goods and services once notified. As of now, it’s not applicable.
Can I issue e-invoices?
No, composition dealers are not required to issue e-invoices.
What if I start a new business mid-year?
You can opt for the scheme during new registration, but not switch mid-year in an ongoing business.
What is GSTR-4?
It’s an annual return for composition dealers that needs to be filed once a year.
Can a professional like a CA or architect opt for this scheme?
Yes, service providers can opt for it if turnover is within ₹50 lakh.
Can I run multiple businesses under this scheme?
Yes, but all businesses under the same PAN must register under the scheme together.
Do I still need a GST number if I’m under this scheme?
Yes, GST registration is still mandatory even under the composition scheme.
What happens during GST audits?
Composition dealers are subject to fewer audits due to lower risk and compliance burden.
How can I exit the Composition Scheme?
You can file a request to switch to regular GST on the GST portal.
Will I need to pay penalties if I don’t comply?
Yes, non-compliance may attract interest, penalties, and **loss of