GST Composition Scheme: Eligibility, Benefits and Limitations

The GST composition scheme is designed for small businesses that want simpler compliance. Instead of charging GST on each invoice and claiming input tax credit, a composition dealer pays tax at a fixed, low percentage of turnover.

Who can opt for it?

• Businesses whose aggregate turnover is within the notified limit (lower for special category states).
• Traders, manufacturers and restaurants (not serving alcohol).
• Service providers under a separate composition option with its own limit.

Who cannot opt in?

• Businesses making inter-state supplies of goods.
• E-commerce sellers supplying goods through operators who collect tax at source.
• Manufacturers of certain notified goods, such as ice cream, pan masala and tobacco products.
• Casual taxable persons and non-resident taxable persons.

Benefits

• Lower tax outgo at a fixed rate on turnover.
• Simpler returns – quarterly CMP-08 payment and one annual return (GSTR-4).
• Less paperwork – no need to track input tax credit.

Limitations

• No input tax credit on purchases.
• Cannot collect GST from customers – you issue a bill of supply, not a tax invoice.
• Buyers cannot claim credit on your sales, which may put off B2B customers.
• Must display “Composition taxable person” at the business premises and on bills.

How to opt in or out

New businesses can choose composition when applying for GST registration. Existing taxpayers opt in before the start of the financial year by filing the prescribed form. You can opt out at any time, and must do so if you cross the turnover limit.

Is it right for you?

Composition suits small retailers selling mostly to consumers within the state. If your customers are businesses that want input credit, or you buy a lot of taxed inputs, the regular scheme may work out better.

Talk to us through our GST registration and GST return filing services.

Why Choose Vaidam Consultancy?

Our team of chartered accountants, company secretaries and legal professionals handles the paperwork so you can focus on growing your business.

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Frequently Asked Questions

Q1. Can a composition dealer charge GST on invoices?

No. A composition dealer issues a bill of supply and cannot collect GST from customers.

Q2. Which returns does a composition dealer file?

CMP-08 every quarter and GSTR-4 annually.

Q3. Can a composition dealer sell online?

Selling goods through e-commerce operators is generally not allowed under composition.

Q4. What happens if turnover crosses the limit?

You must move to the regular scheme from the date the limit is crossed.