What is the Composition Scheme?
A simplified GST option for small taxpayers. Instead of complex monthly returns and full ITC accounting, you pay a flat percentage of turnover and file just one quarterly statement plus an annual return.
Who is Eligible
| Business type | Annual turnover limit |
|---|---|
| Traders & manufacturers (most states) | ₹1.5 crore |
| Traders & manufacturers (special-category states) | ₹75 lakh |
| Restaurants and outdoor caterers | ₹1.5 crore |
| Other services (Sec 10(2A)) | ₹50 lakh |
Who Cannot Opt In
- Inter-state suppliers
- E-commerce sellers requiring TCS
- Manufacturers of pan masala, tobacco, ice cream, aerated water, fly ash bricks
- Non-resident or casual taxable persons
- Anyone whose turnover exceeded the limit in the previous FY
Tax Rates
| Business | Total Rate |
|---|---|
| Manufacturers | 1% (0.5% CGST + 0.5% SGST) |
| Traders | 1% |
| Restaurants (no alcohol) | 5% (2.5% + 2.5%) |
| Services under Sec 10(2A) | 6% (3% + 3%) |
Key Restrictions
- Cannot collect GST from customers — comes out of margin
- Cannot claim ITC on any purchases
- Must issue Bill of Supply, not Tax Invoice
- Must display "composition taxable person, not eligible to collect tax" on bills and notice boards
- No inter-state outward supplies
- No supply through e-commerce operators with TCS
- RCM still applies on purchases from unregistered suppliers at normal rates
Returns
- CMP-08 — Quarterly statement-cum-challan. Due 18th of month after quarter.
- GSTR-4 — Annual return. Due 30 April following the FY.
How to Opt In / Out
- Existing taxpayers — file Form CMP-02 before start of FY
- New registrants — select at registration (CMP-01)
- Opt-out — Form CMP-04; mandatory within 7 days if turnover crosses limit
When Composition Makes Sense
- You sell mostly to end consumers (no ITC needed)
- Low value-add business — most cost is direct material
- You operate entirely within one state
- Compliance time savings outweigh lost ITC
When It's a Bad Fit
- You sell mainly to GST-registered businesses (they want ITC)
- High-value purchases — lost ITC hurts
- Growing fast — likely to cross threshold mid-year
- You want to sell on e-commerce
In iAccounting
Toggle "Composition Mode" — iAccounting disables ITC tracking, replaces "Tax Invoice" with "Bill of Supply", adds the mandatory declaration, and auto-prepares CMP-08 and GSTR-4.
Set up iAccounting →Continue Learning
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