🔹 Introduction

The GST Composition Scheme is designed to reduce compliance burden for small taxpayers. It allows eligible businesses to pay tax at a lower rate on turnover and file simplified returns. However, it comes with restrictions on ITC, supply types, and eligibility.

This article provides a detailed compliance guide to the GST Composition Scheme in 2025.

(References: Sec. 10 of CGST Act, Rules 5–7, CBIC Notifications till 2025)

🔹 Eligibility for Composition Scheme

✅ Turnover Limit

• Normal States: Up to ₹1.5 crore aggregate turnover in the preceding financial year.

• Special Category States: Up to ₹75 lakh.

✅ Who Can Opt

• Manufacturers (except notified goods).

• Traders/dealers (suppliers of goods).

• Restaurants (not serving alcohol).

❌ Who Cannot Opt

• Businesses supplying inter-state outward supplies.

• Businesses supplying through e-commerce operators required to collect TCS.

• Manufacturers of notified goods (e.g., ice cream, pan masala, tobacco).

• Service providers (except restaurants).

• Casual taxable persons & non-resident taxable persons.

⚠️ Update FY 2025: Service providers may opt for a similar scheme under Sec. 10(2A) (composition scheme for services) subject to turnover limit of ₹50 lakh, with 6% tax rate.

🔹 Tax Rates under Composition Scheme

• Manufacturers: 1% of turnover (0.5% CGST + 0.5% SGST).

• Traders/Dealers: 1% of turnover.

• Restaurants: 5% of turnover (2.5% CGST + 2.5% SGST).

• Service Providers (Sec. 10(2A)): 6% of turnover (3% CGST + 3% SGST).

🔹 Compliance Requirements

📌 1. Opting into Composition Scheme

• File CMP-02 on GST portal before commencement of financial year.

• Furnish details of stock in CMP-03 within 60 days.

📌 2. Returns to be Filed

• GSTR-4 (Annual Return): To be filed by 30th April of following FY.

• CMP-08 (Quarterly Statement): To declare turnover & pay tax by 18th of month following quarter.

📌 3. Payment of Tax

• Tax payable on turnover in state/UT.

• Paid quarterly via CMP-08 using PMT-06 challan.

📌 4. Invoice & Records

• Cannot issue tax invoice; must issue Bill of Supply.

• Cannot collect tax from customers separately.

• Must display “Composition taxable person, not eligible to collect tax on supplies” at place of business.

📌 5. Exiting the Scheme

• File CMP-04 within 7 days if ineligible or opting out.

• File ITC-01 to claim ITC on stock when shifting to regular scheme.

🔹 Advantages of Composition Scheme

• ✅ Lower tax rates → Cost savings for small businesses.

• ✅ Lesser compliance → Only quarterly CMP-08 & annual GSTR-4.

• ✅ Simpler invoicing → Bill of Supply instead of tax invoice.

• ✅ Stability for small traders/manufacturers.

🔹 Disadvantages & Restrictions

• ❌ No ITC allowed.

• ❌ Cannot make inter-state supplies.

• ❌ Not eligible for e-commerce sellers.

• ❌ Not suitable for businesses dealing with large corporate buyers (who demand ITC).

🔹 Penalties for Wrongful Opt-In

• If ineligible person opts for scheme → treated as regular taxpayer from the date of ineligibility.

• Liable to pay differential tax with interest & penalty under Sec. 74A.

🔹 Practical Examples

• Small Trader in Ghaziabad: Annual turnover ₹80 lakh, intra-state sales only → Eligible for composition (1% tax).

• Restaurant in Noida: Turnover ₹1.2 crore → Eligible (5% tax).

• Manufacturer supplying inter-state: Ineligible for scheme.

🔹 FAQs

Q1. Can composition dealers collect GST from customers?
➡️ No, they can’t. They must pay tax out of pocket.

Q2. Can a composition dealer issue tax invoice?
➡️ No, only Bill of Supply.

Q3. Can ITC be claimed on purchases?
➡️ No, ITC not available under composition.

Q4. Can composition dealers sell outside the state?
➡️ No, only intra-state supplies allowed.

Q5. How is tax paid by service providers under Sec. 10(2A)?
➡️ 6% of turnover up to ₹50 lakh.

🔹 Best Practices

• ✅ Review eligibility before opting.

• ✅ Maintain turnover records.

• ✅ Display mandatory signboard.

• ✅ File CMP-08 & GSTR-4 on time.

• ✅ Exit scheme immediately if conditions not met.

🔹 Conclusion

The GST Composition Scheme is a useful option for small businesses, but it comes with restrictions. Before opting, evaluate your turnover, customer profile, and supply type. Wrongful opting can lead to heavy penalties.

📌 Need help choosing between Regular & Composition scheme?
Contact Tech-Tax Solutions – Quality, Trust & Expertise in Ghaziabad, Noida & Delhi.