Introduction

For small businesses in India, managing monthly GST returns, invoices, and tax calculations can often become a burden. To simplify compliance and reduce paperwork, the Government of India introduced the GST Composition Scheme, a concessional tax structure that allows eligible small taxpayers to pay GST at a fixed rate based on turnover.
This guide explains eligibility, tax rates, turnover limits, benefits, and compliance requirements to help small businesses determine whether they should opt for the Composition Scheme.

What Is the GST Composition Scheme?

The GST Composition Scheme is a simplified tax option for small taxpayers who prefer easier compliance over traditional GST filing.

Under this scheme:

• Businesses pay GST at a fixed percentage of turnover.

• They file fewer returns.

• They avoid maintaining detailed invoice-level records.

The scheme is ideal for businesses that deal mainly in local supplies and want to reduce compliance costs.

Who Is Eligible for the Composition Scheme?

✔ Businesses with turnover up to ₹1.5 crore (₹75 lakh in some states)
✔ Service providers up to ₹50 lakh turnover (under the Composition Scheme for Services)

✔ Eligible businesses:

• Manufacturers (excluding notified goods)

• Traders

• Restaurants not serving alcohol

• Small service providers (under special provision)

Who Cannot Opt for the Composition Scheme?

• Businesses engaged in interstate outward supplies

• E-commerce sellers

• Manufacturers of ice cream, tobacco, or pan masala

• Casual taxable persons

• Businesses supplying goods through online platforms

• Non-resident taxable persons

GST Composition Scheme Tax Rates

• Businesses engaged in interstate outward supplies

• E-commerce sellers

• Manufacturers of ice cream, tobacco, or pan masala

• Casual taxable persons

• Businesses supplying goods through online platforms

• Non-resident taxable persons

Compliance Requirements Under the Composition Scheme

Even though the scheme offers simplified compliance, certain obligations still apply:

1. Annual Return Filing

• File GSTR-4 (Annual) once a year

2. Quarterly Payment

• Make tax payment through CMP-08 every quarter

3. No ITC Available

• Composition taxpayers cannot claim input tax credit, and buyers cannot claim ITC on their invoices.

4. Declaration on Signboards

Businesses must mention:

"Composition taxable person. Not eligible to collect tax on supplies."

5. Maintain Basic Records

Even though detailed invoice-wise records are not required, businesses must maintain:

• Sales and purchase summaries

• Stock registers

• CMP-08 payment challans

Benefits of the Composition Scheme

✔ Lower Tax Rates

Significantly reduces tax burden for small businesses.

✔ Simplified Compliance

Only quarterly payments and one annual return—no GSTR-1 or GSTR-3B.

✔ Reduced Paperwork

Minimal record-keeping and documentation.

✔ Better Cash Flow

No requirement to pay tax on each invoice—helps micro and small businesses.

Limitations to Consider

❌ Cannot collect GST from customers

This reduces competitiveness when dealing with GST-registered buyers.

❌ No Input Tax Credit

ITC blocked for both seller and buyer.

❌ Only for intra-state supplies

Businesses planning interstate expansion cannot use this scheme.

Should You Opt for the Composition Scheme?

The scheme is ideal if:

• You are a small or micro business

• Your customers are mostly end consumers

• You want minimal compliance and fixed tax payments

• You do not need to issue GST invoices with tax breakdown

However, if your business deals with B2B buyers who depend on ITC, or if you plan interstate expansion, the regular GST scheme may be more suitable.

Conclusion

The GST Composition Scheme offers an excellent compliance-friendly alternative for small businesses, helping them reduce paperwork, pay lower taxes, and focus on growth. However, it also comes with limitations such as no ITC and restrictions on interstate sales.

Bisways Consulting Group provides end-to-end support for GST registration, Composition Scheme enrolment, CMP-08 filing, return compliance, and guidance to help MSMEs choose the right GST structure.