The GST Composition Scheme is a simplified tax scheme designed to ease the compliance burden for small taxpayers. Under this scheme, eligible taxpayers can pay GST at a fixed percentage of their turnover, avoiding complex filing procedures. It is available to businesses with an annual turnover of less than ₹1.5 crore*.
To check whether a taxpayer has opted for the Composition Scheme, you can use the GST search tool. Simply enter the GSTIN and review the ‘Taxpayer Type’ field in the results — it will indicate whether the person is a regular taxpayer or falls under the composition scheme.
*Note: The CBIC has officially raised the threshold limit from ₹1 crore to ₹1.5 crore. Consult us, for the best GST services!
Who Can Choose the Composition Scheme?
Taxpayers with an aggregate turnover below ₹1.5 crore* are eligible to opt for the scheme. However, for businesses located in North-Eastern states and Himachal Pradesh, the limit is reduced to ₹75 lakh*.
As per the CGST (Amendment) Act, 2018, a composition dealer is now permitted to provide services up to 10% of their turnover or ₹5 lakh, whichever is higher. This change has been effective from 1st February 2019.
Additionally, in its 32nd meeting held on 10th January 2019, the GST Council recommended raising the eligibility limit for service providers.
*Note: For turnover calculation, the combined turnover of all entities registered under the same PAN must be included.
Who is Not Eligible for the Composition Scheme?
The following categories of taxpayers are not permitted to opt for the GST Composition Scheme:
- Manufacturers of ice cream, pan masala, or tobacco products
- Taxpayers involved in inter-state supply of goods or in supplying exempt goods/services
- Casual taxable persons and non-resident taxable persons
- Individuals who supply goods or services through an e-commerce platform where the platform collects TCS under Section 52 of the CGST Act
- Any manufacturer or service provider notified by the government, based on recommendations from the GST Council, as ineligible
Conditions for Availing the Composition Scheme
To qualify for the GST Composition Scheme, a taxpayer must fulfill the following conditions:
- Input Tax Credit (ITC) cannot be claimed under the scheme
- The dealer is not allowed to supply goods that are outside the scope of GST, such as alcohol for human consumption
- Tax must be paid at standard GST rates for any supplies subject to Reverse Charge Mechanism (RCM)
- If a person operates multiple business types (like clothing, electronics, groceries) under one PAN, then either all units must opt into the scheme together or none at all
- The phrase “composition taxable person” must be clearly displayed on all signboards or notices at every business location
- The phrase “composition taxable person” must also be printed on every bill of supply issued
In line with the CGST (Amendment) Act, 2018, traders and manufacturers under the scheme are also allowed to offer services up to 10% of their total turnover or ₹5 lakh, whichever is greater. This provision has been in effect from 1st February 2019.
How to Opt for the Composition Scheme?
To enroll in the GST Composition Scheme, a taxpayer must submit Form GST CMP-02 to the government. This process is done online by logging into the GST Portal. The application must be filed at the beginning of each financial year by any eligible taxpayer who wishes to continue or newly opt for the scheme.
Step-by-Step: Filing CMP-02 on the GST Portal
- Log in to the GST Portal
- Navigate to the Services section
- Select Registration > Application to Opt for Composition Levy
- Fill in the required details and submit Form CMP-02
- Verify the application using DSC or EVC
Once successfully filed, the taxpayer will be considered under the Composition Scheme for that financial year.
How Should a Composition Dealer Issue Bills?
A composition dealer is not allowed to issue tax invoices, as they are not permitted to collect GST from customers. Instead, they are required to issue a Bill of Supply for each sale.
The bill must clearly display the statement:
“Composition taxable person, not eligible to collect tax on supplies”
at the top of the document.
This ensures transparency and compliance with the GST law, as the tax is paid by the dealer directly, not collected from the customer.
GST Payment Process for Composition Dealers
Under the GST Composition Scheme, dealers are required to make tax payments from their own funds, as they are not allowed to collect GST from customers. The payment includes the following components:
- GST on outward supplies
- Tax under Reverse Charge Mechanism (RCM)
- Tax on purchases from unregistered dealers (applicable only for specific categories of goods/services and notified classes of registered persons, effective from 1st February 2019 — not yet notified, hence currently not applicable)
Returns Required for Composition Dealers
Composition dealers have reduced compliance requirements but still need to file specific returns:
- Form CMP-08 – A quarterly statement for tax payment, due by the 18th of the month following each quarter.
- Form GSTR-4 – An annual return to be filed by 30th April of the following financial year (applicable from FY 2019–20 onward).
- Form GSTR-9A – An annual return (waived for FY 2017–18 and FY 2019–20) due by 31st December of the next financial year.
Note: Composition dealers are not required to maintain detailed records like regular taxpayers.
Benefits of the Composition Scheme
Taxpayers opting for the GST Composition Scheme enjoy several advantages:
- Simplified compliance – Fewer returns and minimal bookkeeping
- Lower tax rates – Resulting in reduced tax liability
- Better cash flow – Enhanced liquidity as less tax is paid overall
Limitations of the Composition Scheme
Despite its benefits, there are certain drawbacks to be aware of:
- Restricted to intra-state trade – Cannot make inter-state supplies
- No Input Tax Credit (ITC) – Tax paid on purchases cannot be claimed
- Not eligible for certain supplies – Cannot sell non-taxable items under GST (e.g., alcohol) or supply via e-commerce platforms
Frequently Asked Questions (FAQs)
1. Can a composition dealer issue tax invoices?
No. A composition dealer cannot issue tax invoices as they are not allowed to collect GST from customers. They must issue a Bill of Supply instead.
2. Is Input Tax Credit available to composition dealers?
No, composition dealers are not eligible to claim Input Tax Credit on purchases.
3. Can composition dealers sell goods across state borders?
No. Inter-state sales are not permitted under the Composition Scheme.
4. How frequently does a composition dealer need to pay tax?
Taxes are paid quarterly using Form CMP-08, and an annual return (GSTR-4) is also required.
5. Are composition dealers allowed to do business through e-commerce platforms?
No. Dealers under the Composition Scheme cannot supply goods/services through e-commerce operators liable to collect TCS.
6. Can a composition dealer supply exempted or non-GST goods?
No. They cannot supply exempt or non-taxable goods such as alcohol for human consumption.
7. What happens if turnover exceeds the limit during the year?
If the annual turnover crosses the prescribed limit, the dealer must switch to the regular GST scheme and start complying accordingly.
