GST composition scheme

Who can opt in

The general limits, which are set by notification and should be confirmed on cbic-gst.gov.in:

• Traders, manufacturers and restaurants: aggregate turnover up to ₹1.5 crore in the previous financial year. A lower limit applies in some special category states.
• Service providers and mixed suppliers under the separate services composition option: turnover up to ₹50 lakh.
• A goods composition dealer may also supply some services, up to 10% of turnover or ₹5 lakh, whichever is higher.

Turnover is counted across all registrations under the same PAN in India, and if one registration opts in, all must.

Who cannot opt in

• Those making inter-state outward supplies of goods.
• Manufacturers of certain notified goods, such as ice cream, pan masala and tobacco products.
• Suppliers of goods not taxable under GST, such as alcoholic liquor for human consumption.
• Casual taxable persons and non-resident taxable persons.
• Those supplying through e-commerce operators who collect tax at source, subject to the relaxation for goods introduced in 2023; check the current conditions.

Rates of tax

This tax comes out of your own pocket. You cannot show it on the bill or recover it from the buyer. You also pay tax under reverse charge at the normal rate where it applies, and tax on imports of services, without credit.

Worked comparison

A hardware retailer in Bhopal has annual sales of ₹1,20,00,000 (excluding tax), almost all to walk-in customers, and buys stock for ₹1,02,00,000 plus 18% GST.

Under composition: tax = 1% of ₹1,20,00,000 = ₹1,20,000, paid from margin. GST paid on purchases, ₹18,36,000, becomes part of cost.

Under normal GST: output tax 18% of ₹1,20,00,000 = ₹21,60,000, collected from customers. Credit ₹18,36,000. Cash paid ₹3,24,000, but that is collected from customers, not from margin.

The real comparison is price. Under composition, the retailer's cost per item is higher by the GST on purchases, and the shelf price includes it. Under normal GST, the retailer adds 18% on the bill. For a shop selling mainly to consumers who do not claim credit, composition often means lower paperwork for a similar final price. For a business selling to registered buyers, composition is usually a poor fit, because buyers get no credit and will prefer a regular supplier.

Documents and returns

• Issue a bill of supply, not a tax invoice, with the words "composition taxable person, not eligible to collect tax on supplies". See bill of supply under GST.
• Display "composition taxable person" at the place of business.
• CMP-08: quarterly statement and payment, generally by the 18th of the month after the quarter.
• GSTR-4: annual return. Its due date was 30 April and has been moved to 30 June from FY 2024-25; confirm on gst.gov.in.
• No monthly GSTR-1 or GSTR-3B.

Opting in and out

1. Opt in before the start of the financial year by filing CMP-02 on the portal. New registrants can choose it at the time of registration.
2. When opting in, stock on hand on which you claimed credit has to be accounted for and the credit reversed.
3. If turnover crosses the limit during the year, you move out of the scheme from that day and must apply within the set time to switch to normal registration.
4. You can also opt out voluntarily during the year by filing the withdrawal form. On moving out, you can claim credit on stock held on that day, subject to conditions.

A buyer checking your GSTIN on the portal will see that you are a composition dealer.

This is general information, not tax advice.

Common mistakes

• Charging GST on the bill while registered under composition. The tax collected must still be paid, and penalties can follow.
• Selling to a customer in another state, even once. Inter-state sales are not allowed under the scheme.
• Counting only taxable sales against the limit. Exempt sales are part of aggregate turnover.
• Claiming credit on purchases in the books, which composition dealers cannot do.

Using Cashflow OS as a composition dealer

Cashflow OS reads whatever is in TallyPrime, so a composition business still gets sales, purchases, outstanding, party statements and stock on the phone. The GSTR-1 and GSTR-3B views are meant for regular taxpayers; composition returns are prepared and filed on the portal by you or your accountant.