GST Composition Scheme India — Who Should Opt and How 2026

GST Composition Scheme India — Who Should Opt and How 2026

The GST Composition Scheme is designed to simplify compliance for small businesses. Instead of the full GST compliance regime (GSTR-1, GSTR-3B, ITC reconciliation), composition dealers pay a flat tax rate on turnover and file a simple quarterly return (CMP-08) and one annual return (GSTR-4).

The scheme significantly reduces compliance burden — but comes with important restrictions that make it unsuitable for certain business types.

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Who Can Opt for Composition Scheme?

Eligibility
- Aggregate annual turnover up to Rs. 1.5 crore (Rs. 75 lakh for some special category states)
- Manufacturer, trader, or restaurant owner
- Must not have multiple businesses registered under different GSTINs — all must be on composition

Ineligible for Composition
- Service providers (except restaurants): cannot use composition
- Businesses making interstate outward supplies
- Businesses supplying non-taxable goods (like alcohol)
- Businesses supplying through e-commerce operators (Flipkart, Amazon) where TCS is applicable
- Ice cream, pan masala, tobacco manufacturers

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Composition Scheme Tax Rates

| Business Type | Tax Rate (on Turnover) |
|---|---|
| Manufacturers | 1% (0.5% CGST + 0.5% SGST) |
| Traders (goods) | 1% (0.5% CGST + 0.5% SGST) |
| Restaurants (not alcohol-serving) | 5% (2.5% CGST + 2.5% SGST) |
| Service providers (under special scheme) | 6% (3% CGST + 3% SGST) — only for those up to Rs. 50 lakh |

Note: IGST is not applicable for composition — only CGST + SGST. This means composition dealers CANNOT sell interstate.

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Key Restrictions

No Input Tax Credit
Composition dealers cannot claim ITC on their purchases. If you buy goods worth Rs. 1 lakh with Rs. 18,000 GST, you cannot claim back that Rs. 18,000. The entire purchase cost including GST is your cost.

Cannot Sell Interstate
All supplies must be within the same state. A composition dealer in Delhi cannot sell goods to a customer in Mumbai.

Cannot Issue Tax Invoice
Composition dealers issue a "Bill of Supply" — not a tax invoice. Buyers cannot claim ITC on purchases from a composition dealer. This makes composition dealers unattractive to B2B buyers who want ITC.

No Non-Taxable Supplies
If you sell any exempt goods alongside taxable goods, you cannot be on composition.

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Who Benefits from Composition Scheme?

Ideal for Composition:
- Small retailers selling locally (B2C):
- Kirana stores, stationary shops, local clothing stores
- Customers don't want ITC — it doesn't matter that you issue Bill of Supply
- Small manufacturers selling locally:
- Furniture makers, artisans, food processors selling in their district
- Small restaurants:
- Dhabas, small cafes — customers don't want ITC, no interstate sales

Not Suitable for Composition:
- B2B businesses: buyers need ITC — they won't buy from a composition dealer
- Service providers (most): cannot use scheme (only small service providers up to Rs. 50 lakh have a variant)
- Businesses with interstate customers
- Businesses with significant input costs: cannot claim ITC, so the tax saving on output may be less than the ITC lost

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When Should You Switch from Composition to Regular?

- Turnover exceeds Rs. 1.5 crore: mandatory switch
- B2B customers are asking for GST invoices with ITC: consider switch even below threshold
- Expanding interstate: mandatory switch
- Input costs are high: calculate whether ITC savings under regular scheme outweigh the higher compliance burden

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Composition Scheme Compliance

Quarterly Payment (CMP-08)
- File CMP-08 quarterly: April-June (by July 18), July-September (by October 18), October-December (by January 18), January-March (by April 18)
- Pay tax computed on quarterly turnover
- No detailed invoice-level filing

Annual Return (GSTR-4)
- File GSTR-4 annually by April 30
- Summary of all outward supplies and tax paid
- Reconciled with CMP-08 quarterly filings

Bill of Supply
- Must mention: "Composition taxable person, not eligible to collect tax on supplies"
- Cannot collect GST from customer separately — tax is embedded in price

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MICS Composition Scheme Software

- CMP-08 computation: quarterly turnover calculation and tax amount
- GSTR-4 preparation: annual return summary
- Bill of Supply generation: correct format with required mentions
- Turnover monitoring: alert when approaching Rs. 1.5 crore threshold
- Switch assistance: help migrate to regular GST when needed

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Pricing

- Composition scheme compliance: Rs. 3,000/month
- Regular GST compliance: Rs. 6,000/month (when business grows or switches)

Free GST consultation: +91 9355273535 | admin@mics.asia