Composition Scheme under GST

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Composition Scheme under GST – Benefits, Eligibility, and Compliance (2025 Guide)

The Composition Scheme under GST is one of the most beneficial provisions for small taxpayers in India. It is specifically designed to reduce the compliance burden and provide ease of doing business to small businesses. By opting for this scheme, eligible businesses can pay tax at a fixed, lower rate and file quarterly returns instead of monthly returns.

In this blog, we will cover everything you need to know about the Composition Scheme under GST – eligibility criteria, tax rates, benefits, compliance requirements, and important points to keep in mind.

What is the Composition Scheme under GST?

The Composition Scheme is a simplified tax scheme under the Goods and Services Tax (GST) that allows small taxpayers to pay tax at a lower rate on their turnover and avoid the hassles of detailed record-keeping and monthly returns.

It is an ideal option for small businesses, traders, and restaurants that want to stay GST-compliant with minimal paperwork.

Eligibility Criteria for Composition Scheme

Not all businesses can opt for this scheme. Here are the key eligibility conditions:

  • Turnover Limit – Businesses with an aggregate turnover of up to ₹1.5 crore (₹75 lakh for North-Eastern and hill states) in the preceding financial year are eligible.

  • Type of Business – Manufacturers, traders, and restaurants (not serving alcohol) can opt for this scheme.

  • Exclusions – Service providers (except restaurants), businesses dealing in inter-state supply, e-commerce operators, or those supplying through e-commerce platforms are not eligible.

GST Composition Scheme Tax Rates (2025)

The tax rates under the Composition Scheme are much lower compared to the regular GST rates. Here are the applicable rates:

Type of Taxpayer GST Rate under Composition Scheme
Manufacturers 1% (0.5% CGST + 0.5% SGST)
Traders/Dealers 1% (0.5% CGST + 0.5% SGST)
Restaurants (not serving alcohol) 5% (2.5% CGST + 2.5% SGST)

These rates are charged on the turnover, not on the value of each supply.

Benefits of Composition Scheme

Opting for the Composition Scheme can be highly beneficial for small taxpayers. Some major advantages include:

  1. Lower Tax Liability – Pay tax at a much lower rate compared to regular GST rates.

  2. Reduced Compliance – Quarterly filing of returns instead of monthly filing.

  3. No Input Tax Credit (ITC) Complexity – No need to track input tax credit or reconcile invoices.

  4. Ease of Doing Business – Minimal paperwork and reduced record-keeping requirements.

Compliance under Composition Scheme

Even though the scheme is simpler, businesses still need to follow some basic compliance requirements:

  • Quarterly Return Filing – File GSTR-4 every quarter and an annual return in GSTR-9A.

  • Bill of Supply – Instead of a tax invoice, issue a Bill of Supply to customers as composition taxpayers cannot collect tax from customers.

  • Display Notice – Clearly display “Composition Taxable Person” at the place of business and mention it on every bill of supply.

Limitations of Composition Scheme

Before opting for the scheme, consider the following limitations:

  • Cannot collect GST from customers.

  • Cannot claim Input Tax Credit (ITC) on purchases.

  • Ineligible to make inter-state supplies or supply through e-commerce platforms.

  • Need to opt out of the scheme if turnover exceeds the threshold limit.

How to Opt for Composition Scheme?

You can opt for the Composition Scheme at the time of GST registration by selecting the option in Form GST REG-01. Existing taxpayers can switch to this scheme by filing Form CMP-02 at the beginning of a financial year.

Final Thoughts

The Composition Scheme under GST is a great option for small businesses to reduce compliance burdens and pay tax at a lower rate. However, it is important to evaluate whether the scheme is beneficial for your business model, especially if you deal with B2B customers who require Input Tax Credit.

By staying compliant and filing returns on time, small taxpayers can focus on growing their business rather than worrying about GST complexities.

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