GST Composition Scheme: Eligibility, Tax Rates and Returns
A simple guide to the composition scheme for small taxpayers: who qualifies, what it costs and how to file.
This guide on gst composition scheme explains the key points in plain language. Use the contents list below to jump to the section you need, and confirm the details on the official source listed at the end before you act.
Table of Contents
The composition scheme lets small taxpayers pay GST at a low fixed percentage of turnover and file fewer returns. It reduces paperwork, but it comes with limits, so it suits some businesses far better than others.
Who can opt for it
A taxpayer whose annual turnover is below ₹1.5 crore can generally opt for the scheme, subject to other conditions. Suppliers of services only are covered by a lower limit, and special category states have separate limits, so check the current notification for your case. The scheme is not available to non-resident taxable persons, persons liable to collect TCS, input service distributors, persons liable to deduct TDS, and suppliers of online information and database access services.
Key restrictions
- You pay tax at a fixed rate on turnover and cannot claim input tax credit. If you are unsure how credit works, read our guide to input tax credit.
- You cannot collect GST from customers or show tax separately on the bill. You issue a bill of supply instead.
- You are generally not allowed to make interstate supplies of goods.
Tax rates
The rate is a small percentage of turnover, commonly 1% for manufacturers and traders, 5% for restaurants not serving alcohol, and a different rate for eligible service providers. Confirm the rate applicable to your activity on the official portal, since the rates are notified separately.
Returns and due dates
| Form | What it is | Due date |
|---|---|---|
| CMP-08 | Quarterly statement and payment of tax | 18th of the month following the quarter |
| GSTR-4 | Annual return | 30 April after the financial year |
A late fee applies if GSTR-4 is filed after the due date. It has been notified at ₹50 per day, capped at ₹2,000, and ₹20 per day, capped at ₹500, for nil returns, with a separate penalty possible on the tax amount. Fee relief is sometimes announced, so check the current notification. Compare this with regular filers in our article on GSTR-1 and GSTR-3B.
Is it right for you?
The scheme is useful for small retailers and traders who sell mostly to consumers. It can be a poor fit if your customers are businesses that need input credit, or if you buy heavily with GST and cannot recover it. If you are not yet registered, see our guide to GST registration for small businesses.
Frequently asked questions
What is the turnover limit for the composition scheme?
Generally below ₹1.5 crore, with different limits for service providers and special category states.
Can a composition dealer claim input tax credit?
No. Input tax credit is not available under the scheme.
When is GSTR-4 due?
By 30 April following the end of the financial year.
Can I charge GST to customers under the scheme?
No. You issue a bill of supply and cannot collect tax from customers.
This article is for general information only and is not tax, legal or investment advice. Rules, rates and due dates change, so confirm the latest position with the official notification or portal before acting.
Official source for gst composition scheme
Always verify current rules, dates and forms on the official website: GST Portal. For help applying this to your own case, see our professional services.
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