Pay GST at a lower fixed rate and file simpler returns. Ideal for traders, manufacturers, and restaurants with turnover up to ₹1.5 Cr.
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The GST Composition Scheme is a simplified compliance mechanism introduced by the Government of India to ease the tax burden on small taxpayers and micro-enterprises.
It allows eligible businesses to pay GST at a fixed percentage of turnover instead of charging tax on every transaction.
Compliance requirements are minimal, and filing obligations are less frequent.
It is especially beneficial for B2C businesses.
Businesses opting for the scheme cannot charge GST on invoices or claim Input Tax Credit (ITC).
Composition dealers pay a flat tax on gross turnover and must file CMP-08 quarterly and GSTR-4 annually.
The GST Composition Scheme is a special provision under Section 10 of the CGST Act, 2017, designed to simplify GST compliance for small businesses. Rather than collecting GST from customers and claiming Input Tax Credit, composition dealers pay tax directly on their total turnover at a lower, fixed rate. The objective is to support small businesses in complying with GST laws without heavy accounting and compliance burdens.
Eligibility must be re-evaluated each financial year if turnover or business structure changes.
Select the Composition option in Form GST REG-01 during registration.
File Form GST CMP-02 before 31st March to opt for the scheme.
Ideal for businesses with local customers and limited compliance needs.
Opting at the right time ensures uninterrupted benefits throughout the financial year. However, once opted, businesses must follow the scheme’s conditions strictly or risk penalties and disqualification.
The Composition Return Filing under GST is designed for small taxpayers who have opted for the Composition Scheme. It simplifies the return process, reduces filing frequency, and lowers the tax burden. Applicability is restricted to specific categories of businesses with turnover and operational limitations.
Registered manufacturers and traders (excluding manufacturers of notified goods like ice cream, pan masala, or tobacco) can opt for the Composition Scheme. Their turnover must not exceed ₹1.5 crore (₹75 lakh in NE & hill states). These businesses file quarterly returns via CMP-08 and an annual return via GSTR-4 and are taxed at a flat rate (generally 1% of turnover).
Restaurants and food service providers not serving alcoholic beverages are eligible under the scheme. They are taxed at 5% (2.5% CGST + 2.5% SGST) of turnover and must file CMP-08 quarterly and GSTR-4 annually. This ensures simplified compliance for food service businesses.
Service providers or mixed suppliers (goods + services) with turnover up to ₹50 lakh per annum can opt for the scheme under Notification No. 2/2019 – Central Tax (Rate). They are taxed at 6% (3% CGST + 3% SGST). Input Tax Credit is not available under this category.
Engaging in restricted activities leads to automatic disqualification from the Composition Schemeand may attract penalties. Businesses must carefully assess their operational nature before opting or filing returns under the composition scheme.
Under the GST Composition Scheme, businesses are required to file specific returns based on their compliance cycle. These returns differ from regular GST filings in terms of frequency, format, and content. Below are the primary return forms applicable to composition taxpayers:
Quarterly Payment Return
CMP-08 is a quarterly statement-cum-challan used by composition dealers to declare self-assessed tax liability and make tax payments. It must be filed by the 18th of the month following each quarter. The form contains details like outward supplies, tax payable, and taxes paid. Filing CMP-08 ensures continued compliance under the composition scheme, even if there are no sales (Nil Return).
Intimation for Opting Composition Scheme
CMP-02 is the form through which an eligible taxpayer notifies the government about opting into the composition scheme. It must be filed before the beginning of the financial year or within the stipulated time during new registration. Once filed, the taxpayer is treated as a composition dealer from the effective date, and all related return obligations (CMP-08, GSTR-4) follow.
Annual Return for Composition Dealers
GSTR-4 is the annual return to be filed by composition taxpayers. It summarizes the total turnover, tax paid, and inward supplies during the financial year. The due date is 30th April following the end of the financial year. Unlike CMP-08, which is filed quarterly, GSTR-4 provides a consolidated view of annual operations and is mandatory even for nil turnover.
Timely filing of GST composition returns is essential to maintain compliance, avoid penalties, and retain eligibility under the scheme. Missing deadlines may result in late fees, interest charges, and suspension of GST registration.
Deadline: 18th of Month Following Quarter
CMP-08 is a tax payment declaration and must be filed even when there are no outward supplies (Nil return).
Yearly Compliance Return
Due Date
30th April
Following the end of the Financial Year
GSTR-4 summarizes turnover, inward supplies, and overall compliance. Filing is mandatory even if CMP-08 returns were filed on time.
Penalties & Compliance Risk
Staying updated with due dates ensures smooth operations and legal peace of mind.
Below is a checklist of commonly required documents valid business transactions, confirm tax liabilities, and maintain legal compliance.
Valid GSTIN, trade name, and principal place of business must be available and updated on the GST portal.
Quarterly or annual turnover figures with corresponding invoices (if any) for outward supplies. These are needed even if no tax was collected, as turnover must be reported in CMP-08 and GSTR-4.
Details of any inward supplies (B2B purchases), especially from unregistered dealers, must be maintained and reported in GSTR-4.
Challan receipts of tax payments made through CMP-08, including dates and transaction references for all four quarters.
Statements may be used to verify turnover, especially during audits or reconciliation checks.
Filing history including previously submitted CMP-08 and GSTR-4 forms for cross-verification and annual summary.
For company or LLP filings, a DSC is needed. Proprietors and partnerships can file using OTP-based Electronic Verification Code (EVC).
Filing GST Composition Returns involves a structured yet simplified process. Composition dealers must file CMP-08 (quarterly) and GSTR-4 (annually) to remain compliant under the scheme.
Visit www.gst.gov.in and log in using your GSTIN, username, and password.
Go to the Returns Dashboard, select the financial year and quarter, and choose Form CMP-08 to declare self-assessed tax liability.
Enter total turnover and tax payable for the quarter. If no sales were made, enter zero and file a Nil return.
Verify the summary, preview the form, and make payment through net banking or other available modes.
After the financial year ends, select Form GSTR-4 and enter turnover, inward supplies, and tax summary based on quarterly filings.
Use a Digital Signature Certificate (DSC) or Electronic Verification Code (EVC) to submit the return and download the acknowledgement receipt.
Keep copies of filed returns and challans. Set reminders for future deadlines to avoid penalties or suspension of GST registration.
This streamlined process helps businesses under the Composition Scheme stay compliant with minimal effort. Professional assistance can further simplify data preparation, filing, and communication with GST authorities.
Compliance Note: Composition returns must be filed within prescribed due dates. Late or incorrect filing may attract penalties, interest, or cancellation of composition scheme status.
The GST Composition Scheme offers fixed, lower tax rates to simplify compliance for small taxpayers. These rates vary based on the nature of the business. Here's a detailed breakdown of applicable tax rates for different categories under the scheme:
Manufacturers opting for the composition scheme are required to pay GST at 1% of their turnover (0.5% CGST + 0.5% SGST). This excludes manufacturers of items such as tobacco, ice cream, and pan masala, which are not eligible.
Dealers engaged in trading or supplying goods must pay 1% of their taxable turnover in the state or union territory, split equally between CGST and SGST. This rate helps reduce the compliance burden while maintaining legal consistency.
Restaurants that do not serve alcohol can opt for the composition scheme and pay a fixed 5% GST on total turnover (2.5% CGST + 2.5% SGST). This rate is applicable only to standalone restaurants, not part of larger hotel chains.
Eligible service providers can opt into the scheme under the Composition Scheme for Services, introduced via Notification No. 2/2019. They must pay 6% GST (3% CGST + 3% SGST) on turnover, applicable if their total turnover is up to ₹50 lakh annually.
Important: These rates are calculated on the total turnover and are significantly lower than regular GST rates. However, composition dealers cannot claim Input Tax Credit (ITC) on purchases made for their business.
While the GST Composition Scheme offers compliance and cost benefits, it comes with specific limitations that businesses must evaluate to avoid legal issues and ensure long-term scalability.
Composition dealers are not allowed to charge GST on invoices. This creates challenges with business clients, as they cannot claim Input Tax Credit on such transactions.
Businesses under the scheme cannot claim Input Tax Credit (ITC) on purchases. This increases the effective cost of inputs and may reduce profitability for high-procurement businesses.
Dealers under the composition scheme cannot make inter-state outward supplies. This limits expansion across states and serving clients beyond state borders.
Composition taxpayers are prohibited from supplying goods or services through e-commerce platforms that collect TCS under GST. This restricts online selling opportunities.
Suppliers cannot make any supplies to Special Economic Zones (SEZs) while under the composition scheme. Businesses targeting SEZ or export-linked operations should opt for regular GST registration.
Exiting the scheme timely when ineligible is crucial to avoid penalties. Here are the key scenarios for withdrawal.
You must immediately exit the scheme if you start any of the following restricted activities:
If a taxpayer's aggregate turnover exceeds the prescribed limit (₹1.5 crore for most states; ₹75 lakh for special category states), they are required to mandatorily exit the composition scheme and shift to regular GST registration.
Failing to do so can lead to penalties and demand notices from GST authorities.
A taxpayer may also voluntarily opt out of the composition scheme for business scalability or operational flexibility. This is done by filing Form GST CMP-04 on the GST portal.
Once filed, you must comply with all requirements of the regular GST scheme, including monthly returns and ITC management.
Taxpayers must exit the composition scheme within 7 days of becoming ineligible or exceeding the turnover threshold. Delayed exit can result in interest, penalties, and recovery of differential tax. Ensure timely filing of Form GST CMP-04 and transition to regular GST compliance to avoid legal complications.
Understand the key differences to decide which model best fits your business needs.
We assist with timely preparation and online submission of CMP-08 and GSTR-4 returns, ensuring accurate details and compliance with GST regulations for composition dealers across all sectors.
Our experts help you understand composition eligibility, applicable turnover limits, and advise on when to switch to the regular GST scheme based on your business growth.
We prepare and verify all required documents, ensure accurate tax calculation, and send automated alerts for due dates—helping you avoid penalties and stay compliant year-round.
