GST Composition Scheme for Goods — Eligibility, Rates & Compliance Guide
A flat-rate tax mechanism for manufacturers, traders and retailers under ₹1.5 crore — with five filings a year instead of twenty-four
What Is the GST Composition Scheme and How Does It Work?
The GST Composition Scheme is one of the most beneficial simplification measures introduced under the Goods and Services Tax framework for small businesses in India. For manufacturers, traders, and retailers of goods with aggregate annual turnover up to ₹1.5 crore, the Composition Scheme offers a flat-rate tax mechanism with significantly reduced compliance obligations compared to the regular GST regime.
At N D Savla & Associates, our chartered accountants in Mumbai assist small business owners in evaluating whether the Composition Scheme is the right fit, completing the opt-in process, and maintaining ongoing compliance under CMP-08 and GSTR-4 filing requirements. Our advisory approach goes beyond form-filling — we analyse your supply chain, customer base, and ITC structure to ensure the Composition Scheme genuinely benefits your business.
Whether you are a kirana store owner in Andheri, a garment trader in Dharavi, a small manufacturer in Bhiwandi, or a food products retailer across Mumbai, our GST Composition Scheme advisory is designed for your business scale and operational realities.
The Mechanism in Practice
The scheme, governed by Section 10 of the CGST Act, 2017, allows eligible businesses to pay GST at a fixed percentage of their aggregate turnover instead of the standard GST rate. Composition dealers are not required to maintain detailed input tax credit records, do not issue tax invoices (they issue bills of supply instead), and file quarterly returns instead of monthly returns.
The scheme dramatically reduces the compliance burden for small businesses — instead of filing GSTR-1 and GSTR-3B every month (24 returns per year), composition dealers file CMP-08 quarterly statements and one annual GSTR-4 return, totalling just 5 filings per year.
Who Is Eligible for the GST Composition Scheme for Goods?
Turnover Threshold
Businesses supplying goods with aggregate annual turnover up to ₹1.5 crore in the preceding financial year are eligible. For businesses in special category states — Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Uttarakhand — the threshold is ₹75 lakh.
Eligible Business Types
Manufacturers of goods (except notified goods), traders and retailers of goods, and restaurant businesses (with modifications under the CGST Amendment Act) can opt in. Restaurants opting for composition pay 5% GST on their aggregate turnover.
Who Cannot Opt In
Suppliers of services (other than restaurants), inter-state suppliers, e-commerce operators and sellers supplying through e-commerce platforms, manufacturers of notified goods (ice cream, pan masala, tobacco products), and non-resident taxable persons are all ineligible.
Service providers above the threshold must obtain regular GST Registration and cannot opt for the Composition Scheme. Freelancers providing services should refer to our GST Registration for Freelancers page for applicable compliance. Foreign entities are excluded entirely — see GST Registration for Foreigners.
Composition Scheme Before and After GST
The concept of a simplified tax regime for small businesses predates GST. Under the pre-GST VAT regime, most states had a composition scheme for small traders with annual turnover below a state-prescribed threshold. These composition dealers paid VAT at a fixed percentage without the need for input tax credit or detailed record-keeping.
| Period | Regime | Position for Small Business |
|---|---|---|
| Pre-GST | State VAT composition schemes | Fixed VAT of roughly 1–4%, thresholds typically ₹50 lakh to ₹75 lakh |
| Pre-GST | Central Excise — SSI exemption | Small Scale Industries below ₹1.5 crore turnover exempt from excise duty entirely |
| Pre-GST | Service Tax | Blanket exemption below ₹10 lakh; no composition option as such |
| July 2017 | GST Composition Scheme introduced | Threshold set at ₹75 lakh for continuity with state VAT schemes |
| November 2017 | GST Council raises threshold | Raised to ₹1 crore |
| January 2018 | GST Council raises threshold again | Raised to ₹1.5 crore following small business representations |
| 2019 | Section 10(2A) special composition levy | 6% for service providers and mixed suppliers with turnover up to ₹50 lakh |
| 2020 | Shift to quarterly CMP-08 statements | Further reduced the compliance burden for composition dealers |
The introduction of e-filing and electronic verification through the GST portal has made Composition Scheme compliance more accessible than at any point under the earlier regimes.
What Are the GST Rates Under the Composition Scheme?
| Business Type | Composition Rate | Split |
|---|---|---|
| Manufacturers of goods | 1% of aggregate turnover | 0.5% CGST + 0.5% SGST |
| Traders and retailers of goods | 1% of aggregate turnover | 0.5% CGST + 0.5% SGST |
| Restaurants not serving alcohol | 5% of aggregate turnover | 2.5% CGST + 2.5% SGST |
| Service providers under Section 10(2A) | 6% of turnover up to ₹50 lakh | Special composition levy introduced by the CGST (Amendment) Act, 2018 |
These rates apply on the aggregate turnover, not the taxable value — which means the rate applies to gross sales including exempt supplies but excluding inward supplies on which RCM is payable.
What Are the Compliance Requirements Under the Scheme?
Opt-In Filing (Form CMP-02)
A registered taxpayer who wishes to opt for the Composition Scheme files Form CMP-02 on the GST portal before the commencement of the financial year. New registrations can opt for the Composition Scheme at the time of GST registration itself.
Quarterly CMP-08 Payment Statements
Composition dealers file Form CMP-08 — a quarterly self-assessed statement of outward supplies and tax payable — by the 18th of the month following each quarter (18 July, 18 October, 18 January, 18 April). CMP-08 requires disclosure of aggregate turnover and payment of composition tax.
Annual GSTR-4 Return
In addition to quarterly CMP-08, composition dealers file an annual consolidated return in Form GSTR-4 by 30 April of the following financial year. GSTR-4 consolidates all quarterly CMP-08 data and includes outward supplies, inward supplies liable to RCM, and tax paid.
Bill of Supply Issuance
Composition dealers issue a Bill of Supply — not a Tax Invoice — for every supply. The Bill of Supply must state 'Composition Taxable Person, not eligible to collect tax on supplies', and must carry the dealer's GSTIN and address.
Record-Keeping
While the scheme reduces filing complexity, basic records of purchases, sales, stock, and tax payments must be maintained. Businesses must also retain purchase invoices from suppliers to verify the ITC eligibility of those suppliers.
Annual Review of Eligibility
If aggregate turnover exceeds ₹1.5 crore during the year, the composition dealer must opt out of the scheme from the day of breach and switch to the regular regime. Our advisors monitor this threshold and alert clients in advance to prevent inadvertent non-compliance.
Can I Switch from the Composition Scheme to Regular GST?
Yes. A composition dealer can voluntarily opt out of the scheme at any time by filing Form CMP-04. Additionally, if the aggregate turnover exceeds ₹1.5 crore, the dealer is automatically required to switch to the regular scheme from the day of breach. Upon switching, the dealer must issue a debit note to rectify past Bills of Supply and file Form ITC-01 to claim ITC on stock held at the time of switching.
For businesses that switch and need to file amendment requests or update their GSTIN category, our GST Registration Change & Amendment service handles the complete transition process.
If you ever need to close your GST registration entirely after leaving the Composition Scheme, our GSTR-10 Final Return service and Revocation of GST Cancellation advisory cover all exit scenarios.
Composition Scheme vs Regular GST: Which Is Right for Your Business?
| Factor | Composition Scheme | Regular GST |
|---|---|---|
| Tax basis | Fixed percentage of aggregate turnover | Applicable GST rate on taxable value of each supply |
| Collecting GST from customers | Not permitted — tax is an out-of-pocket cost | Permitted and passed on through the invoice |
| Document issued | Bill of Supply | Tax Invoice |
| Input tax credit | Not available | Available on eligible business purchases |
| Filings per year | 5 — four CMP-08 statements plus one GSTR-4 | 24+ — monthly GSTR-1 and GSTR-3B, plus annual GSTR-9 |
| Inter-state supplies | Not permitted | Permitted |
| Best suited to | B2C, single-state businesses stably below ₹1.5 crore | Businesses with B2B customers needing ITC or inter-state trade |
Our Mumbai-based CA team will analyse your specific business model — customer mix, supply footprint, and ITC position — and provide a tailored recommendation rather than a default answer.
If you are also planning for estate or business succession alongside GST compliance, our Estate Planning services can be engaged alongside our GST advisory for a comprehensive approach.
Why Choose N D Savla & Associates for Composition Scheme Advisory?
Threshold Monitoring and Proactive Alerts
We track your monthly sales and alert you when approaching ₹1.5 crore, ensuring you switch regime without penalty. This proactive monitoring is a key differentiator of our Composition Scheme service.
Complete CMP-08 and GSTR-4 Filing
Our GST team handles all quarterly CMP-08 and annual GSTR-4 filings with zero delay. You receive advance reminders 15 days before each due date and confirmation of successful filing.
Switching Advisory
When your business grows beyond the threshold, we manage the complete transition to the regular GST regime — including ITC-01 filing, debit note issuance, and your first GSTR-1 and GSTR-3B filing.
Documentation Templates
We provide Composition Scheme-compliant Bill of Supply templates that include all mandatory declarations, protecting you from scrutiny during GST audits.
Reasonable and Transparent Fees
Our Composition Scheme compliance package is priced to be accessible for small businesses — the clients this scheme is designed for. Contact us for a fee quote.
RCM Tracking
Reverse charge liability is where composition dealers most often get caught out. We track and remit RCM obligations on purchases from unregistered suppliers so there are no unexpected tax demands.
Frequently Asked Questions — GST Composition Scheme for Goods
Can a manufacturer of any goods opt for the Composition Scheme?
Manufacturers can opt for the Composition Scheme except for notified goods under Section 10(2) of the CGST Act. Currently, the notified goods list includes ice cream and other edible ice (with or without cocoa), pan masala (under tariff heading 2106 90 20), and tobacco and manufactured tobacco substitutes. Manufacturers of all other goods with turnover up to ₹1.5 crore can opt in.
What is the penalty for not opting out of the Composition Scheme after exceeding the turnover threshold?
If a composition dealer continues in the scheme after exceeding ₹1.5 crore, the tax paid at the lower composition rate is considered short-paid. The dealer is liable to pay the difference between the regular GST rate and the composition rate for the period of breach, along with interest at 18% per annum and a penalty up to 100% of the tax due.
Can I run a composition scheme business and a regular GST business simultaneously?
No. The Composition Scheme applies to all registrations of a PAN-linked taxpayer in a state. If you are registered in multiple states for the same PAN, all registrations must be under the same regime — all composition or all regular. You cannot cherry-pick the composition scheme for some states and the regular scheme for others.
Is there any restriction on purchasing goods from unregistered suppliers under the Composition Scheme?
Composition dealers purchasing goods from unregistered suppliers must pay GST on a reverse charge mechanism (RCM) basis under Section 9(4) of the CGST Act. This RCM liability is in addition to the composition tax paid on outward supplies. Our advisors help composition dealers track and remit RCM obligations to prevent unexpected tax demands.
Can a Composition Scheme dealer issue a Tax Invoice for any supply?
No. Composition dealers are prohibited from issuing Tax Invoices and are required to issue only Bills of Supply. Issuing a Tax Invoice as a composition dealer is a violation that can result in cancellation of the composition scheme benefit and imposition of penalties.
Let Our CA Team Evaluate Your Composition Scheme Eligibility
Eligibility assessment, CMP-02 opt-in, quarterly CMP-08 and annual GSTR-4 filing, threshold monitoring, and full transition support for small businesses across Mumbai and Maharashtra.
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