GSTAug 28, 2025
What is the GST Composition Scheme and who is eligible?
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The GST Composition Scheme is a simplified tax scheme for small businesses in India. Instead of filing detailed monthly/quarterly returns and charging GST at the standard rate, composition dealers pay a flat percentage of their turnover as tax.
Eligibility:
- Aggregate turnover in the previous financial year must not exceed ā¹1.5 crore (ā¹75 lakh for special category states)
- For service providers and mixed suppliers, the limit is ā¹50 lakh
Who CANNOT opt for composition:
- Manufacturers of ice cream, pan masala, tobacco, or aerated drinks
- Businesses making inter-state outward supplies
- E-commerce operators
- Non-resident taxable persons
- Casual taxable persons
- Businesses supplying goods through e-commerce platforms
Tax rates under composition:
| Business Type | CGST | SGST | Total |
|---|---|---|---|
| Manufacturers | 0.5% | 0.5% | 1% |
| Traders (goods) | 0.5% | 0.5% | 1% |
| Restaurants (not serving alcohol) | 2.5% | 2.5% | 5% |
| Service providers (Section 10(2A)) | 3% | 3% | 6% |
Key restrictions for composition dealers:
- You cannot charge GST on your invoices. Instead, you issue a "Bill of Supply"
- You cannot claim ITC on your purchases
- You must mention "Composition taxable person" on every bill and notice board
- You can only supply within your state (no inter-state sales)
Filing requirements:
- CMP-08: Quarterly statement of self-assessed tax, due by the 18th of the month after each quarter
- GSTR-4: Annual return, due by April 30 of the following financial year
The scheme is ideal for small retailers and manufacturers with local customers who do not need ITC. If you supply to businesses that need ITC, they may prefer a regular GST dealer.
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Disclaimer: This information is for general educational purposes and is not professional tax advice. Tax situations vary. Consult a qualified tax professional for advice specific to your circumstances.