GST Composition Scheme: A Beginner's Guide

Quick Answer

The GST composition scheme lets small taxpayers (turnover ₹1.5 crore or less; ₹75 lakh for special category states) pay a fixed percentage of turnover as tax. There is no ITC eligibility. It reduces compliance. But it bars interstate sales, e-commerce sales, and reverse charge claims.

Eligibility

• Aggregate turnover is ₹1.5 crore or less (₹75 lakh for special category states).
• Not engaged in making inter-State supplies.
• Not selling through e-commerce operators liable for TCS.
• Manufacturer, trader, or restaurant service provider.

Rates

• Manufacturers and traders: 1% of turnover.
• Restaurants (not serving alcohol): 5% of turnover.
• Service providers: 6% of turnover (eligibility capped at ₹50 lakh).

Key steps to opt in

1. File CMP-02 on the GST portal before the start of the financial year.
2. Pay tax via CMP-08 quarterly by the 18th of the next month.
3. File annual return GSTR-4 by April 30 of the next financial year.

Common pitfalls

• Opting in but still making inter-state supplies.
• Crossing the turnover threshold mid-year. You must exit the scheme.
• Claiming ITC on purchases. This is not allowed under composition.

Next steps

Talk to our team for an eligibility check before opting in or out of the composition scheme.

When this guide applies

Use this guide when you need a plain-English explanation of the topic for an Indian business or taxpayer. We assume you know the basics of Indian taxation and compliance. This guide focuses on specific situations, deadlines, and pitfalls that matter in real filings.

Step-by-step process

1. Confirm the trigger event. This may be a turnover threshold, registration requirement, or compliance deadline that brings this topic into scope for your business.
2. Gather the documents you need. These include PAN, Aadhaar, GSTIN, bank statements, or the specific records called out in the linked forms.
3. File or register through the official portal. This includes income tax e-filing, MCA, GST, FSSAI, or the relevant regulator. Keep your acknowledgement numbers.
4. Pay any fee or tax due. Note the challan reference for your records.
5. Track the SLA. Most approvals arrive in 3–30 working days. Escalate through the regulator’s grievance portal if delayed.

Common pitfalls

• Filing after the due date without paying the late fee. Penalty compounds per month under Section 234F for ITR and per return period for GST.
• Using the wrong ITR form or business code. This leads to a defective return notice under Section 139(9) and a fresh round of filing.
• Ignoring state-specific requirements. This includes professional tax, shop and establishment rules, and state GST registration when operating across multiple states.

When to escalate

Talk to an expert if the situation involves cross-border transactions, notice from the department, or disputed turnover. Self-filing works for routine cases but escalates quickly once a notice arrives.

Next steps

For a personalised check, use our eligibility wizards and free code search tools. To file end-to-end, see the linked service pages on FinTax24.