For businesses looking to simplify their GST compliance for the financial year 2025-2026, the option to opt into the GST Composition Scheme was available on the GST portal until March 31, 2025.
If this deadline has been missed, taxpayers will need to wait until the next window to avail themselves of this facility. Meanwhile, it is a good opportunity to understand the scheme in depth.
This blog is written after watching a detailed and informative video on the GST Composition Scheme by the Goods and Services Tax Network (GSTN) on their official YouTube channel, ensuring up-to-date and authoritative insights.
The blog defines the key aspects of the GST Composition Scheme, including turnover limits, eligibility criteria, applicable tax rates, and compliance procedures, providing actionable advice for small business owners and tax professionals.
What is the GST Composition Scheme?
Term of the week: Composition Scheme#Registration #CompositionScheme #GST #GSTN pic.twitter.com/OcDjakHZ5Z
— GST Tech (@Infosys_GSTN) November 28, 2023
The GST Composition Scheme is a specialized scheme under GST, allowing eligible small taxpayers to pay tax at a fixed percentage of their turnover instead of regular GST rates.
This scheme simplifies tax payment and filing by reducing the compliance obligations, such as monthly returns and detailed invoicing.
Businesses opting for this scheme are not eligible to claim input tax credit, and they must charge tax at a prescribed lower rate, which helps small businesses in managing their cash flows better.
Turnover Limit for GST Composition Scheme
The turnover limits under the GST Composition Scheme are necessary to determine eligibility:
- Rs. 1.5 crore: Applies in most Indian states.
- Rs. 75 lakhs: Applicable for North-Eastern states and Himachal Pradesh.
- Service Providers: Threshold limit capped at Rs. 50 lakhs (applicable from FY 2023-24).
When calculating aggregate turnover, it includes the turnover of all businesses associated with the taxpayer under the same Permanent Account Number (PAN). This total encompasses taxable supplies, exempt supplies, exports, and interstate supplies.
Eligibility Criteria for GST Composition Scheme
To qualify for the GST Composition Scheme, taxpayers must meet the following requirements:
- Operate as a manufacturer, trader, or small service provider with turnover below the specified limits.
- The taxpayer should not be engaged in interstate outward supplies of goods or services, except for supplies to a Special Economic Zone (SEZ).
- Taxpayers dealing in alcohol for human consumption, non-resident taxable persons, input service distributors, and e-commerce operators are not eligible.
- The taxpayer must file an intimation in Form CMP-02 before the beginning of the financial year or immediately upon becoming eligible during the year.
GST Composition Scheme Rates
The scheme offers fixed GST rates based on the type of business activity:
- Manufacturers and Traders: 1% (0.5% CGST + 0.5% SGST).
- Restaurants (excluding those serving alcohol): 5% (2.5% CGST + 2.5% SGST).
- Other Service Providers: 6% (3% CGST + 3% SGST).
Taxpayers under this scheme pay tax on turnover without charging it separately to customers (i.e., tax is paid from their own pocket). They must issue a Bill of Supply instead of a tax invoice and clearly mention their composition scheme status on all bills.
Compliance and Filing Under the Composition Scheme
The compliance requirements for the GST Composition Scheme are simple and easy to follow:
- Tax payment is done quarterly via Form CMP-08.
- Annual return filing using GSTR-4 is mandatory by 30th April of the following financial year.
- Record keeping is simplified compared to the regular GST scheme.
- Input tax credit is not available, so businesses must manage costs accordingly.
Advantages of GST Composition Scheme
- Simplified compliance: Reduced frequency of filing and less paperwork.
- Lower tax rates: Beneficial tax slabs for eligible small business taxpayers.
- Reduced administrative burden: Eases the process for small traders and manufacturers.
- Cash flow management: No need to collect GST from customers, easing pricing strategies.
Challenges and Disadvantages
- With no input tax credit, businesses are unable to reclaim the GST paid on their purchases.
- Restricted to intrastate sales only; interstate sales are not permitted under the scheme.
- Issuing a Bill of Supply instead of a tax invoice may reduce transaction transparency in B2B dealings.
- Risk of penal action if the turnover exceeds the threshold or improper supplies are made.
How to Opt for the GST Composition Scheme
To opt for the scheme, taxpayers must:
- File Form CMP-02 electronically on the GST portal, either at the start of the year or when turnover falls below the prescribed limit during the year.
- Ensure compliance with all eligibility criteria and maintain records.
- Monitor turnover continuously to avoid surpassing thresholds and subsequent penalties.
Maximising Benefits with the GST Composition Scheme
The GST Composition Scheme is a beneficial taxation method for small taxpayers seeking lower tax rates and simplified compliance.
Understanding the turnover limits, eligibility, and rates can help small businesses optimize their tax strategy while ensuring regulatory adherence. Businesses considering this scheme should maintain vigilance regarding the turnover limit and the types of supplies made to avoid penalties and maximize benefits.
This scheme is an ideal option for eligible small taxpayers aiming to reduce GST-related complexity and focus more on business growth.
FAQs
1. Who can opt for the Composition Levy under GST?
Any regular taxpayer with an aggregate annual domestic turnover below the prescribed threshold can opt for the Composition Levy, provided they meet specific eligibility conditions, such as not making interstate outward supplies or dealing in notified goods.
2. Are there any categories of taxpayers who cannot opt for the Composition Scheme?
Yes. Taxpayers making inter-state outward supplies, engaged in supplies through e-commerce operators, manufacturers of notified goods, casual dealers, non-resident foreign taxpayers, input service distributors, and persons registered as TDS deductors or tax collectors are not eligible to opt for the Composition Scheme.
3. What is the procedure to opt for the Composition Levy?
A normal taxpayer must file an online application in Form GST-CMP-02 on the GST portal before the start of the financial year. The scheme is effective from the date opted, and no separate approval from the authorities is required.
4. Is it mandatory to file any declaration about stock when opting for the Composition Scheme?
Yes. Taxpayers must file a Stock Intimation within 30 days from the date they opt for the Composition Levy. This intimation includes details of stock and inward supplies from unregistered persons held on the day prior to opting for the scheme.
5. What happens if a taxpayer opts for the Composition Scheme but does not file the Stock Intimation?
Failure to file the Stock Intimation can lead to the taxpayer being pushed out of the Composition Scheme, with proceedings initiated against them by tax authorities.
6. How often must a taxpayer under the Composition Scheme pay tax and file returns?
Composition taxpayers must pay tax and file statements quarterly using Form GST CMP-08. Additionally, they must file an annual return using Form GSTR-4 for the financial year.
