ARTICLE OVERVIEW
The GST Composition Scheme is a simplified tax compliance mechanism designed for small traders and businesses. It offers reduced tax rates, minimal compliance requirements, and simplified procedures, making GST management easier for eligible small businesses.
WHAT IS COMPOSITION SCHEME?
The Composition Scheme under GST is a voluntary scheme that allows small taxpayers to pay tax at a fixed rate of turnover instead of the normal GST rates. It's designed to ease compliance burden and reduce the cost of tax administration for small businesses.
KEY FEATURES OF COMPOSITION SCHEME
SIMPLIFIED COMPLIANCE
- Quarterly return filing (GSTR-4)
- No monthly returns required
- Simplified record keeping
- No input tax credit complications
- Reduced compliance costs
REDUCED TAX RATES
- Lower tax rates on turnover
- Fixed percentage of annual turnover
- No complex tax calculations
- Predictable tax liability
- Cash flow benefits
WHO CAN OPT FOR COMPOSITION SCHEME?
TURNOVER LIMITS (2025)
Goods Suppliers
Manufacturers, traders, and goods suppliers
Service Providers
Service providers and mixed suppliers
Restaurants
Restaurant services (excluding alcohol)
ELIGIBLE BUSINESSES
✅ Eligible Categories
- Manufacturers of goods
- Traders and dealers
- Restaurant service providers
- Other service providers
- Mixed suppliers (goods + services)
❌ Ineligible Categories
- Inter-state suppliers
- E-commerce operators
- Ice cream and pan masala manufacturers
- Suppliers of notified goods
- Casual and non-resident taxable persons
WHY CHOOSE COMPOSITION SCHEME?
COMPLIANCE BENEFITS
Quarterly Filing
Only GSTR-4 to be filed quarterly instead of monthly returns
Simplified Records
Minimal record keeping requirements and documentation
No ITC Complications
No input tax credit claims or reconciliation required
Reduced Compliance Cost
Lower professional fees and administrative expenses
COMPOSITION SCHEME TAX RATES
CURRENT TAX RATES (2025)
Tax Calculation Formula
Tax Liability = Annual Turnover × Applicable Rate
Example: ₹50 lakhs turnover × 1% = ₹50,000 annual tax
MIXED SUPPLIERS
Goods + Services
- • Services turnover should not exceed ₹10 lakhs or 10% of total turnover
- • Applicable rate: Higher of goods or services rate
- • Separate calculation for goods and services components
WHAT YOU CANNOT DO
BUSINESS RESTRICTIONS
No Input Tax Credit
Cannot claim ITC on purchases and expenses
No Inter-State Sales
Cannot make supplies to other states
No E-commerce Sales
Cannot supply through e-commerce platforms
No Tax Invoice
Cannot issue tax invoices, only bill of supply
COMPLIANCE LIMITATIONS
Invoice Restrictions
Only bill of supply, no tax invoices
Registration Limits
Single state registration only
Business Model
Limited to B2C and unregistered dealers
Growth Constraints
Turnover ceiling restrictions
HOW TO APPLY FOR COMPOSITION SCHEME
STEP 1: ELIGIBILITY CHECK
Check if your business meets turnover criteria
Ensure your business is eligible category
Confirm no disqualifying activities
STEP 2: ONLINE APPLICATION
Application Methods:
New Registration
Apply during GST registration process
Form GST CMP-02
For new applicants
Existing Taxpayers
Migrate from regular scheme
Form GST CMP-02
By 31st January for next FY
ONGOING COMPLIANCE OBLIGATIONS
QUARTERLY FILING - GSTR-4
Filing Schedule
- • Q1 (Apr-Jun): Due by 18th July
- • Q2 (Jul-Sep): Due by 18th October
- • Q3 (Oct-Dec): Due by 18th January
- • Q4 (Jan-Mar): Due by 18th April
GSTR-4 Contents
- • Details of outward supplies
- • Composition tax paid
- • Purchases from unregistered persons
- • Tax paid on reverse charge
RECORD KEEPING REQUIREMENTS
Mandatory Records
- • Daily summary of outward supplies
- • Details of tax paid
- • Purchase records
- • Stock register
Documentation
- • Bills of supply
- • Purchase invoices
- • Payment vouchers
- • Bank statements
ANNUAL COMPLIANCE
Annual Return (GSTR-9A)
Due by 31st December of next financial year
Turnover Monitoring
Ensure turnover doesn't exceed prescribed limits
NEED HELP WITH COMPOSITION SCHEME?
Choosing the right GST scheme is crucial for your business. Our experts help you evaluate eligibility, apply for composition scheme, and ensure ongoing compliance with all requirements.
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