GST explained
GST Composition Scheme: Who Can Opt In, Tax Rates, Bill of Supply and Returns
The composition scheme lets a small business pay GST as a flat percentage of turnover instead of charging tax on every sale and claiming credit on every purchase. It means less paperwork and fewer returns, but it comes with limits that rule it out for many shops. Here is how it works and how to decide.
Key takeaways
- Turnover limit: ₹1.5 crore for goods (₹75 lakh in special category states); ₹50 lakh for services.
- Tax rates on turnover: 1% for manufacturers and traders, 5% for restaurants without alcohol, 6% for services.
- You issue a bill of supply, cannot collect GST from customers and cannot claim input tax credit.
- Returns: CMP-08 every quarter by the 18th, and GSTR-4 once a year by 30 April.
Who can opt in
| Business | Turnover limit (previous year) | Rate on turnover |
|---|---|---|
| Traders and manufacturers of goods | ₹1.5 crore (₹75 lakh in special category states) | 1% (0.5% CGST + 0.5% SGST) |
| Restaurants not serving alcohol | ₹1.5 crore | 5% (2.5% + 2.5%) |
| Service providers (Section 10(2A)) | ₹50 lakh | 6% (3% + 3%) |
For traders, the 1% applies to the turnover of taxable supplies; exempt supplies are left out of the base.
Who cannot
- Businesses making inter-state outward supplies.
- Manufacturers of notified goods such as ice cream, pan masala and tobacco products.
- Non-resident taxable persons and casual taxable persons.
- Businesses supplying goods not taxable under GST, such as alcohol for human consumption.
Bill of supply instead of a tax invoice
A composition dealer cannot charge GST to customers, so it issues a bill of supply rather than a tax invoice. The bill must say “composition taxable person, not eligible to collect tax on supplies” at the top, and the business must display “composition taxable person” at its premises and on its signboard.
The tax is paid by the dealer out of its own pocket, at the flat rate on turnover. This is why the scheme suits businesses that sell mostly to consumers, who cannot claim credit anyway.
Returns and due dates
| Form | What it is | Due date |
|---|---|---|
| CMP-08 | Quarterly statement and payment of tax | 18th of the month after the quarter |
| GSTR-4 | Annual return | 30 April after the financial year |
| CMP-02 | Opting in | Before the start of the financial year |
| CMP-04 | Opting out | Any time; in writing |
Is it right for you?
- Good fit: a kirana, bakery or small eatery selling to consumers in one state, with modest turnover and few purchases carrying GST.
- Poor fit: you sell to registered businesses (they lose credit), you buy a lot of taxed inputs (you lose credit), or you sell across states.
- Check the maths: compare the flat tax on your turnover with the GST you would pay after input credit as a regular dealer.
Verdict
The composition scheme trades input credit and inter-state sales for simplicity. For small consumer-facing businesses it often saves money and time; for anyone selling to other businesses it usually costs more than it saves.
Frequently asked questions
Can a composition dealer sell online?
Composition dealers can supply goods through e-commerce operators under the rules notified in 2023, but they still cannot make inter-state supplies.
Can a composition dealer claim input tax credit?
No. Tax paid on purchases becomes a cost.
What is the composition rate for a restaurant?
5% of turnover (2.5% CGST + 2.5% SGST) for restaurants that do not serve alcohol.
What happens if turnover crosses the limit during the year?
The business leaves the scheme from the day the limit is crossed and must register as a regular taxpayer, issuing tax invoices from then on.
About the author
Written by the TripleBill team, the people who build the billing and accounting software this site is about. We check competitor prices on their own websites on the date shown above, and we say so when our product is the weaker choice. This article is general information, not tax advice.
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