Running a business requires you to manage documentation, taxation, and regulatory compliance, which can be overwhelming for small businesses. To ease the burden and make compliance simpler, the government launched the Goods and Services Tax (GST) Composition Scheme.
The scheme is exclusively for small taxpayers who want fewer regulatory compliances and smoother tax payments. In this blog, we will discuss everything about GST composition rules, eligibility, turnover limit, and tax rates.
The GST Composition Scheme is a simplified tax scheme for small taxpayers with an annual turnover of up to a prescribed limit. It allows small taxpayers to pay tax at a fixed lower rate on their turnover, and submit returns quarterly.
The objective of the GST composition scheme is to ensure simplified GST filing and lower the compliance cost for small taxpayers. Furthermore, it is voluntary, and the qualified individual who chooses to pay tax under this scheme can pay tax at a specified rate on their turnover quarterly.
Here is the eligibility criteria you must meet in order to qualify for the GST composition scheme:
Turnover Limits
In case the business exceeds this turnover within a year, it needs to change over to the regular GST scheme.
Restrictions
Entities that are not eligible for this scheme are given below:
These restrictions ensure that only small and local businesses can avail themselves of the composition scheme.
The rate of taxation under the scheme is low compared to standard GST rates. Here is the specified tax rate composition scheme levy:
| Category of Registered Business | Rate of Tax | ||
| CGST | SGST | Total | |
| Manufacturers and traders of merchandise | 0.5% | 0.5% | 1.0% |
| Restaurants that do not sell alcohol | 2.5% | 2.5% | 5.0% |
| Service providers | 3.0% | 3.0% | 6.0% |
Here are some of the main benefits and drawbacks of the GST composition scheme:
Businesses enrolled in the GST composition scheme must file a special return, CMP-08. It is a quarterly return, in which businesses must file their turnover and pay the tax amount. The due date is the 18th day of the month after the end of the quarter. Example: Quarter 1 (April to June): Due on July 18th. Quarter 2 (July to September): Due on October 18th.
In addition to CMP-08, there is also an annual return (Form GSTR-4), which needs to be filed annually. It’s easy to fill in as it only requires basic details.
Key Information for CMP-08
| Quarter | Due Date |
| 1st Quarter (April-June) | 18th July 2025 |
| 2nd Quarter (July-September) | 18th October 2025 |
| 3rd Quarter (October-December) | 18th January 2026 |
| 4th Quarter (January-March) | 18th April 2026 |
Penalties for Late Filing
A business must consider changing over to the normal GST scheme under the following situations:
The GST Composition Scheme is designed to suit small businesses to pay GST at reduced fixed rates with fewer filings and less paperwork. It enables the SMEs and startups to improve cash flow and concentrate on business development rather than on the complicated tax procedures.
The GST Composition Scheme, with timely financial assistance in the form of business loans, is a powerful base of small business success and sustainable growth. You can provide GST returns as evidence of turnover. GST registration and returns improve your chances of approval when you apply for a business loan.
1. Who is entitled to the GST Composition Scheme?
The GST composition scheme is for taxpayers whose aggregate annual turnover is less than ₹1.5 crore (₹75 lakh in special category states). Service providers can be qualified when turnover is less than ₹50 lakh.
2. What businesses can’t use the Composition Scheme?
Here are the businesses that can’t apply for the GST composition scheme:
3. How many times can the scheme be turned over?
Most states have a turnover limit of ₹1.5 crore, and special category states have a turnover limit of ₹75 lakh. To service providers, it is ₹50 lakh.
4. What are the tax rates in the Composition Scheme?
Manufacturers and traders are charged 1%, restaurants (not serving alcohol) are charged 5% and other service providers who are eligible pay 6% tax on turnover.
5. Is a composition dealer allowed to issue a tax invoice?
No. Composition dealers should issue a Bill of Supply stating that they are composition taxable persons and not entitled to collect tax separately.
6. What is the frequency of filing returns by composition taxpayers?
Composition taxpayers have to submit quarterly returns in Form CMP-08 and annual returns in Form GSTR-4.
7. Can a business be changed to the regular GST scheme?
Yes, when the turnover is more than the limit prescribed, or when the business is involved in interstate supplies or other ineligible activities.
8. How to check if the business has opted for the Composition Scheme?
Enter the GSTIN in the GSTIN Search tool and check the Taxpayer Type column to check whether the taxpayer is a composition dealer.
9. What is Form CMP-08, and who is required to file it?
Form CMP-08 is a quarterly statement-cum-challan that is submitted by taxpayers registered under the GST Composition Scheme to declare and pay their self-assessed tax liability.
10. When is Form CMP-08 due?
It should be submitted quarterly, on or before the 18th of the month after a quarter ends. For example, the due date of the January-March quarter is April 18th.
11. What are the special category states with a ₹50 lakh turnover limit?
