Thinking of Simplifying Your GST Compliance?
The Composition Scheme might be just what you need! It's a hassle-free way for small businesses to manage taxes with minimal compliance and lower tax rates.
What is the GST Composition Scheme?
Businesses with an annual turnover of up to ₹1.5 crore can opt for the Composition Scheme under GST. Thanks to the CGST (Amendment) Act, 2018, even service providers are eligible, provided their service income doesn't exceed 10% of their turnover or ₹5 lakhs, whichever is higher.
Example:
Suppose you run a small retail store with an annual turnover of ₹1.2 crore. You also provide minor repair services worth ₹8 lakhs in the same year. Since your service income (₹8 lakhs) is less than 10% of your total turnover (₹12 lakhs) and below ₹5 lakhs, you're eligible for the Composition Scheme!
Important Note: If you operate multiple businesses under the same PAN, the total turnover across all entities is considered.
To enroll, just file GST CMP-02 at the start of each Financial Year. It's a simple move that can save time, effort, and stress for small businesses.
Why Choose the Composition Scheme?
Lower Tax Rates
Pay as low as 1% tax on your turnover instead of the regular 18-28% GST rates!
Minimal Record Keeping
No need to maintain detailed records like regular GST taxpayers. Keep it simple!
Quarterly Returns
File returns quarterly instead of monthly, giving you more time to focus on your business.
More Time for Business Growth
Less compliance means more time to run and grow your business!
Whether you're a manufacturer, trader, or a restaurant owner (not serving alcohol), the Composition Scheme could save you both time and money.
Who Cannot Opt for the GST Composition Scheme?
The GST Composition Scheme offers a simplified path for many small businesses, but here's who's ineligible:
Ice cream, pan masala, or tobacco businesses
These sectors are explicitly kept out by law.
Inter-state or exempt suppliers
The scheme is strictly for intra-state taxable sales only.
Casual or non-resident taxable persons
Temporary or foreign-based businesses don't qualify.
E-commerce platform sellers
Suppliers selling through platforms that collect TCS under Section 52 (like Amazon, Flipkart) cannot opt in.
Government-notified businesses
Some manufacturers or service providers may be excluded as per notifications from time to time.
GST Rates for Composition Scheme Dealers
If you're registered under the GST Composition Scheme, here are the correct tax rates based on your type of business:
| Type of Business | CGST | SGST | Total GST Rate |
|---|---|---|---|
| Manufacturers & Traders (Goods) | 0.5% | 0.5% | 1.0% |
| Restaurants (Not Serving Alcohol) | 2.5% | 2.5% | 5.0% |
| Other Service Providers | 3.0% | 3.0% | 6.0% |
Note: As per the GST notification dated 01.01.2018, for traders, "turnover" means only the taxable supplies of goods—not your entire revenue.
How to Register for the GST Composition Scheme?
Awesome news! Signing up for the Composition Scheme is quick, easy, and 100% online. No stress, no fuss!
Submit Form GST CMP-02
Go to the GST Portal and submit Form GST CMP-02 to get started. No paperwork mountain, no waiting in queues—everything's smooth and hassle-free online.
Timing is Key!
You must submit Form CMP-02 in March for the coming financial year to keep enjoying all the scheme's benefits. File it right at the start of every Financial Year!
How Should a Composition Dealer Issue Bills?
If you're a composition dealer under GST, billing works differently—and it's important to get it right!
Important!
You cannot issue a tax invoice.
Why? Because under the GST Composition Scheme, you're not allowed to charge GST to your customers. Instead, you pay a fixed tax directly to the government from your own funds.
Issue a Bill of Supply
This is the correct format for composition dealers and ensures you stay compliant with GST rules.
Important line to include: At the very top of your bill, make sure to include this clear disclaimer:
"Composition taxable person not eligible to collect tax on supplies"
How Does a Composition Dealer Make GST Payments?
Here's something you should keep in mind: GST isn't collected from your customers—it's paid directly out of your own pocket. That means you're responsible for making the tax payment yourself, based on your total turnover.
Your GST payment will include three main components:
- Tax on outward supplies (goods or services you sell)
- Tax under reverse charge, if it applies to your business
- Tax on purchases from unregistered dealers – But don't worry! This only applies to certain notified goods or services, and as of now (from 1st Feb 2019), it hasn't been notified. So currently, this part isn't applicable.
What Returns Does a Composition Dealer Need to File?
Good news for composition dealers—your GST return process is much simpler than regular taxpayers!
Quarterly Statement – CMP-08
File CMP-08 every quarter, which is a simple summary of your sales and tax paid. The due date is the 18th of the month following the end of each quarter.
Annual Return – GSTR-4
File GSTR-4 annually. The deadline is 30th April of the following financial year (starting from FY 2019-20).
Bonus Tip!
One of the perks of the Composition Scheme is that you're not required to maintain detailed records like regular GST taxpayers. It's all about keeping compliance easy and stress-free!
Are There Any Disadvantages?
While the Composition Scheme is great for small businesses, it does come with a few limitations you should be aware of:
No Inter-State Sales
You can only do business within your own state. Inter-state supply of goods is not allowed under this scheme.
No Input Tax Credit
You won't be able to claim Input Tax Credit (ITC) on your purchases. This means you can't reduce your tax liability using the tax you paid on inputs.
Restrictions on Certain Supplies
If you're involved in selling non-taxable goods under GST (like alcohol) or intend to use e-commerce platforms, the Composition Scheme does not apply to you.
So, while the Composition Scheme keeps things simple, it's important to weigh these restrictions before registering.
Let's Stay Connected!
Have questions or need help with GST registration and compliance? We're just a message away!
Email: works.dbassociates@gmail.com / connectus@dnbca.com
Website: connectus@dnbca.com
Disclaimer:
The information provided in this blog is for general awareness and educational purposes only. It should not be considered professional advice. Readers are advised to consult a qualified Chartered Accountant or tax professional for guidance specific to their situation. While every effort is made to ensure accuracy, the author and the firm assume no responsibility for any errors or omissions.