What is the Composition Scheme?
The Composition Scheme is a simplified compliance route for small taxpayers under GST. Instead of paying tax at normal rates on every invoice and filing detailed monthly returns, a composition dealer pays a fixed percentage of turnover as tax and files a simple quarterly statement (CMP-08) plus one annual return (GSTR-4). It dramatically reduces the compliance burden for small businesses.
Eligibility — Turnover Limits
| Type of Business | Aggregate Turnover Limit |
|---|---|
| Traders & Manufacturers (goods) | ₹1.5 crore (₹75 lakh in special category states) |
| Service providers (separate scheme u/s 10(2A)) | ₹50 lakh |
The limit is based on aggregate turnover (PAN-India, all GSTINs) in the preceding financial year.
Composition Tax Rates
| Category | CGST | SGST | Total |
|---|---|---|---|
| Manufacturers & Traders | 0.5% | 0.5% | 1% of turnover |
| Restaurants (not serving alcohol) | 2.5% | 2.5% | 5% of turnover |
| Service providers (u/s 10(2A)) | 3% | 3% | 6% of turnover |
Note: traders pay 1% on the turnover of taxable supplies only, whereas manufacturers pay 1% on total turnover.
Key Restrictions on Composition Dealers
- Cannot collect GST from customers — the tax is paid out of the dealer's own pocket.
- Cannot claim Input Tax Credit on purchases.
- Cannot make inter-state outward supplies (sales must be within the state).
- Cannot supply through e-commerce operators that collect TCS.
- Cannot supply non-taxable goods (e.g., alcohol, petrol).
- Must issue a Bill of Supply instead of a tax invoice, and display "composition taxable person" on signboards and bills.
Who Cannot Opt for Composition?
- Manufacturers of ice cream, pan masala, tobacco, aerated water and certain notified goods
- Inter-state suppliers
- Casual taxable persons and non-resident taxable persons
- Businesses supplying through e-commerce operators liable to collect TCS
How to Opt In
A new registrant chooses composition at the time of registration (Form REG-01). An existing regular taxpayer opts in by filing Form CMP-02 before the start of the financial year. On opting in, ITC on stock held must be reversed via Form ITC-03.
Filing CMP-08 (Quarterly)
CMP-08 is a simple quarterly statement-cum-challan used to declare turnover and pay the composition tax. Due dates:
| Quarter | Due Date |
|---|---|
| Apr–Jun (Q1) | 18 July |
| Jul–Sep (Q2) | 18 October |
| Oct–Dec (Q3) | 18 January |
| Jan–Mar (Q4) | 18 April |
Late filing of CMP-08 attracts interest at 18% p.a. on the tax due, plus late fee. You must pay the tax in cash via challan before filing.
Filing GSTR-4 (Annual)
GSTR-4 is the annual return for composition dealers, due by 30 June following the end of the financial year. Its key tables:
- Table 4: Inward supplies (purchases), including those under reverse charge.
- Table 5: Summary of self-assessed tax already paid through CMP-08 during the four quarters (auto-reconciled).
- Table 6: Tax rate-wise outward supplies and inward supplies attracting RCM — the actual annual liability.
- Table 7: TDS/TCS credit received.
- Table 8: Tax payable and paid; any shortfall between Table 6 and Table 5 must be paid.
Late fee for GSTR-4 is ₹50 per day (₹25 CGST + ₹25 SGST), capped at ₹2,000 (₹500 for a nil return).
Practice the Composition Scheme on IndIaTaxSim
IndIaTaxSim simulates the entire composition journey — registering as a composition dealer, issuing a Bill of Supply (no GST fields), paying composition tax via challan, filing CMP-08 each quarter, and filing GSTR-4 annually with the automatic Table 5 vs Table 6 reconciliation that the real portal performs. You will see exactly how the CMP-08 payments roll up into the annual GSTR-4 liability.
IndIaTaxSim Team
GST compliance experts building India's most complete GST simulation platform. All articles are reviewed for accuracy against the latest GSTN portal updates.