GST Composition Scheme: Rules, Turnover Limit & Benefits

The GST Composition Scheme is a simplified tax regime for small businesses in India. It reduces compliance burden and offers lower tax rates, making it easier for entrepreneurs to manage GST obligations effectively.

What is the GST Composition Scheme?

The GST Composition Scheme is designed for small taxpayers to simplify GST compliance. Instead of paying tax at standard rates and filing multiple returns, eligible businesses pay a fixed percentage of turnover as tax. This scheme reduces paperwork and helps maintain liquidity for small enterprises.

Additionally, these factors make businesses more attractive to lenders if you are seeking a Business Loan, and using a Business Loan EMI Calculator helps plan repayments effectively alongside tax obligations.

Also Read: What is Business Loan: A Complete Guide

Eligibility Criteria for GST Composition Scheme

• Aggregate turnover up to ₹1.5 crore for goods suppliers
• ₹75 lakh limit for special category states
• ₹50 lakh limit for service providers
• Must not engage in inter-state supply of goods
• Cannot sell through e-commerce platforms
• Aggregate turnover calculated across all businesses under same PAN

Who Cannot Opt for the GST Composition Scheme?

Certain businesses are not eligible for the GST Composition Scheme. These include manufacturers of notified goods such as tobacco and pan masala, businesses engaged in inter-state supply of goods, and e-commerce operators. Service providers exceeding the prescribed turnover limits are also ineligible, along with casual taxable persons and non-resident taxable persons. These restrictions ensure that the scheme remains focused on small, local businesses and prevents misuse by entities operating on a larger scale.

How to Opt for the GST Composition Scheme?

1. Login to GST portal and navigate to Services > Registration > Application to opt for Composition Scheme
2. File Form GST CMP-02 before the start of the financial year
3. Ensure eligibility criteria are met
4. Submit required documents and confirm application

GST Composition Scheme Tax Rates Explained

These rates are significantly lower than regular GST rates, helping small businesses maintain affordability and compliance.

How Should a Composition Dealer Issue Bills?

Composition dealers must issue a Bill of Supply instead of a tax invoice. Each bill should carry the statement ‘composition taxable person, not eligible to collect tax’. Buyers cannot claim input tax credit on such transactions.

GST Payments and Returns for Composition Dealers

Composition dealers pay tax out of pocket and cannot collect GST from customers. They must file CMP-08 quarterly by the 18th of the month following the quarter and GSTR-4 annually by 30th April. Late filing attracts penalties and interest.

Also Read: GST Payment Online: How to Pay GST Tax Easily in 2025

Benefits and Drawbacks of the GST Composition Scheme

The GST Composition Scheme offers several advantages for small businesses. Lower tax rates improve affordability and help maintain better liquidity, while reduced compliance burden with fewer returns simplifies operations. The scheme also ensures an easier billing process and encourages the formalisation of micro and small enterprises. However, it comes with certain limitations. Businesses under this scheme cannot claim input tax credit, are not allowed to make inter-state supplies, and cannot collect tax from customers. Additionally, eligibility is restricted for certain sectors, which may limit its applicability for some businesses.

How to Check if a Business is Registered Under the Composition Scheme?

To verify whether a business has opted for the GST Composition Scheme, visit the official GST portal and use the GSTIN search tool. Enter the GSTIN of the business in the search field and submit the query. The portal will display the taxpayer’s profile, including registration status, type of taxpayer, and whether the composition scheme is active. This check is essential for buyers and suppliers to ensure compliance and understand billing implications, as composition dealers issue a Bill of Supply instead of a tax invoice and cannot collect GST.

Final Thoughts

The GST Composition Scheme simplifies compliance for small businesses and reduces tax burden. This financial stability can improve creditworthiness when applying for Business Loan, as lenders value consistent compliance and liquidity.

Apply now for a Business Loan.

FAQs

Q.1. Can a composition dealer claim input tax credit?

A. No, input tax credit is not available under the composition scheme.

Q.2. What happens if turnover exceeds the GST composition scheme limit during the financial year?

A. The dealer must switch to the regular GST scheme and comply with its rules.

Q.3. Is interstate supply allowed under the GST composition scheme?

A. No, interstate supply is prohibited for composition dealers.

Q.4. Can service providers avail the GST composition scheme?

A. Service providers can opt for composition if annual turnover ≤ ₹50 lakh, but only if the service component is not too large relative to their total turnover.

Q.5. How often must composition dealers file returns?

A. Quarterly CMP-08 and annual GSTR-4 filings are mandatory.

Disclaimer:

The content presented on this page, including images and factual information, is intended solely as a summary derived from publicly available sources. GHFL/GFL (“Company”) does not claim ownership of such information, nor does it represent that the Companies have exclusive knowledge of the same. While efforts are made to ensure accuracy, there may be inadvertent errors, omissions, or delays in updating the content. Users are strongly encouraged to independently verify all information and seek expert advice where necessary. Any decisions made based on this content are solely at the discretion and responsibility of the user. Godrej Capital and its affiliates assume no responsibility for any loss or damage that may result from the use of or reliance on the information provided herein.