The composition scheme lets eligible small businesses pay GST at a low flat rate on turnover and file a simple quarterly statement instead of detailed monthly returns. The trade-off: you cannot charge GST separately or claim input tax credit, and there are eligibility limits. We help you decide honestly whether it fits.
What the composition scheme is
The composition scheme is a simplified way for small businesses to pay GST. Instead of charging GST on every invoice, claiming input tax credit and filing detailed monthly returns, you pay a small flat percentage of your turnover as tax and file a simple quarterly statement. The compliance burden drops dramatically, and your tax becomes predictable.
The catch is that this simplicity comes with real restrictions. The scheme is designed for small, mostly local, mostly business-to-consumer operations — and for the right business it is genuinely better, while for the wrong one it quietly costs money. Deciding correctly is the whole point of talking to a practitioner first.
The flat tax rates
Under the scheme, tax is a flat share of turnover rather than the normal rate on each sale:
- Traders and manufacturers: about 1% of turnover
- Restaurants (not serving alcohol): about 5% of turnover
- Eligible service providers under the special composition scheme: about 6% of turnover
Who is eligible
For suppliers of goods (traders and manufacturers) and restaurants, the composition scheme is available up to an aggregate turnover of ₹1.5 crore in the financial year. A separate special composition scheme lets small service providers (and mixed suppliers) opt in up to ₹50 lakh of turnover. You must supply within a single state, and certain manufacturers of notified goods (such as tobacco, pan masala and ice cream) are excluded. We check your exact eligibility against your turnover and activity.
The trade-offs you must understand
Composition is not a free lunch. You cannot collect GST separately from your customers (you issue a bill of supply, not a tax invoice) and you cannot claim input tax credit on your purchases — so the GST you pay on inputs becomes a cost. You cannot make inter-state outward supplies, and you cannot sell through e-commerce operators. For a business whose buyers are GST-registered and want credit, or which buys a lot of taxable inputs, these restrictions can make composition more expensive than the regular scheme despite the lower headline rate.
Filing under composition — CMP-08 and GSTR-4
Composition filing is light. Each quarter you pay tax through a simple statement-cum-challan in form CMP-08, and once a year you file an annual return in form GSTR-4. There are no detailed monthly GSTR-1 and GSTR-3B. We handle the quarterly CMP-08 and the annual GSTR-4 so the little compliance there is never gets missed.
How to opt in and out
You opt into composition by filing form CMP-02, normally before the start of a financial year; a new business can opt in at the time of registration. If you grow beyond the limit or your business changes, you move to the regular scheme and file the required intimation and stock statement. Switching has input-tax-credit consequences in both directions, so the timing matters — we manage the transition so nothing is lost.
Our honest recommendation
Because composition genuinely suits some businesses and genuinely hurts others, we do not push it either way. We look at who your customers are, your margins, how much GST your purchases carry, and whether you sell across states or online — and give you a straight recommendation on whether composition or the regular scheme leaves more money in your pocket over the year. Handled under an authorised GST Practitioner (enrolment ID 242000004888GPL).
Who needs this
- Small traders, manufacturers and eligible service providers within the turnover limit
- Businesses selling mostly to end consumers (who do not need your input tax credit)
- Owners who want minimal compliance and predictable tax
Who does not need this
- Businesses that sell to GST-registered buyers who expect input tax credit
- Inter-state sellers and e-commerce sellers (not eligible)
- Businesses that want to claim input tax credit on purchases
How the process works
Eligibility & fit
We check the limits and, more importantly, whether it is actually good for your business.
Opt in
We file the option to pay under composition (CMP-02).
Ongoing filing
We handle the quarterly CMP-08 and annual GSTR-4.
Timeline
Opting in is usually done at the start of a financial year; new registrations can opt in at registration. Quarterly payments and an annual return follow.