The composition scheme: less filing, flat tax — if it fits
Pay a flat 1%, 5% or 6% and file quarterly instead of monthly — that is the composition promise for small businesses. But no input credit and no inter-state sales make it wrong for many who choose it. We check the numbers first, then register you under whichever scheme actually saves you money.
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A simpler deal for small businesses — with strings attached
The composition scheme under Section 10 of the CGST Act is a trade the government offers small businesses: give up input tax credit and some commercial freedoms, and in exchange pay a small flat percentage of turnover with dramatically lighter compliance. Instead of monthly GSTR-1 and GSTR-3B, a composition taxpayer files one payment statement per quarter and one return per year.
For a kirana store, a small workshop, or a family restaurant selling to walk-in customers within Gujarat, that trade is often excellent. For a business selling to other GST-registered businesses, buying heavily taxed inputs, or shipping outside the state, the same trade can quietly cost more than it saves. Both halves of that sentence matter, and this page gives you both — the benefits and the strings — before you opt in.
Turnover limits — who can opt in
Eligibility is measured on aggregate turnover in the preceding financial year:
| Category | Turnover limit |
|---|---|
| Traders, manufacturers & restaurants — normal states including Gujarat | ≤ ₹1.5 crore |
| Same categories — 8 special-category states (Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Uttarakhand) | ≤ ₹75 lakh |
| Service providers — Section 10(2A) scheme | ≤ ₹50 lakh |
Some businesses are excluded outright regardless of turnover: manufacturers of notified goods such as ice-cream, pan masala and tobacco (and items like fly-ash bricks), plus casual and non-resident taxable persons. And crossing the limit mid-year is not a year-end formality — you shift to the regular scheme from that point, and the department can question eligibility through a CMP-05 notice.
What you actually pay
| Business type | Composition rate | Split |
|---|---|---|
| Manufacturers & traders (traders: on taxable turnover in the state) | 1% | 0.5% CGST + 0.5% SGST |
| Restaurants (not serving alcohol) | 5% | 2.5% + 2.5% |
| Service providers under Section 10(2A) | 6% | 3% + 3% |
The crucial mental shift: this tax comes out of your own margin. You cannot add it to the customer's bill the way a regular taxpayer charges GST on a tax invoice. A trader doing ₹60 lakh of taxable turnover pays ₹60,000 a year from their own pocket — simple to compute, but real money, and it must be weighed against what regular-scheme ITC would have refunded you on purchases.
Restrictions — read these before opting
- No input tax credit. GST paid on your purchases, rent and expenses is a dead cost — nothing can be claimed back, and nothing passed on.
- No inter-state outward supplies. Every sale must stay within your state. One regular customer in Mumbai makes the scheme unavailable to a Gujarat business.
- No collecting tax. You issue a bill of supply, not a tax invoice, and cannot charge GST separately on it.
- Mandatory disclosure. "Composition taxable person" must appear on your signboard and on every bill of supply.
- E-commerce limits. Supplying services through TCS-collecting operators is barred. Intra-state sale of goods through e-commerce has been permitted since 1 October 2023 — but most large platforms ship inter-state, which collides with the scheme. If online selling is in your plans, read our guide for Amazon sellers before opting.
- Reverse charge still applies. Purchases attracting reverse charge are payable at normal rates, composition or not.
When composition is the wrong choice. If your customers are GST-registered businesses, they lose the ITC they would have claimed from a regular supplier — many will simply buy elsewhere. If your inputs are heavily taxed (machinery, branded stock, commercial rent), forfeited ITC can exceed everything the flat rate saves. And if exports or inter-state sales are anywhere in your plans, the scheme is unavailable by design. We would rather tell you this before you opt in than help you unwind it afterwards.
Opting in, and the two filings that keep you compliant
Opting in. An existing regular taxpayer opts in by filing CMP-02 on the portal before the financial year begins — mid-year switching into the scheme is not how it works, so the decision is an annual one made by March. A new business simply selects the composition option inside the registration application itself; we handle new GST registration, composition option included, for a ₹499 professional fee (registration on the portal carries no government fee).
Through the year, exactly two obligations:
- CMP-08 — quarterly. A statement of self-assessed tax, due by the 18th of the month after each quarter (18 July for April–June, and so on). No late fee is prescribed for CMP-08 itself, but 18% interest applies to tax paid late.
- GSTR-4 — annually. The composition annual return, due by 30 June following the financial year. Miss it and late fee runs at ₹50 per day, capped at ₹2,000 (₹500 for a nil return).
Compare that with twelve GSTR-1s and twelve GSTR-3Bs on the monthly regular scheme, and the appeal is obvious. Keep in mind the three-year time bar the portal now enforces — even composition returns cannot be filed more than three years after their due date, so a "sleeping" composition GSTIN builds the same kind of permanent mess a regular one does. Due dates and forms are always current on the GST portal.
Composition or regular — how we help you decide
The scheme is not a discount; it is a different deal, and the arithmetic decides. When you ask us, we look at four things before recommending anything:
- Who buys from you — consumers (composition-friendly) or registered businesses that want ITC (composition-hostile).
- What your inputs cost — how much GST you pay on purchases and expenses that ITC would otherwise recover.
- Where you sell — any inter-state or e-commerce ambitions rule the scheme out or constrain it.
- Your appetite for compliance — five filings a year versus a monthly cycle, honestly weighed against the money.
Sometimes the answer surprises people: a trader with thin margins and taxed inputs is often better off regular; a pure-services freelancer under ₹50 lakh serving local clients may genuinely save with the 6% scheme. For the full side-by-side reasoning, read our knowledge article composition vs regular GST — then send us your numbers and we will tell you which way they point. Whichever scheme wins, ongoing filing support is available at ₹499/month through our return filing service, and our dedicated GST practice at GujaratGST.in handles everything beyond.
What we cannot do. We cannot make an ineligible business eligible, keep you in the scheme after turnover crosses the limit, or predict how the department will view a borderline eligibility question — a CMP-05 notice, if it comes, is answered on facts. Our role is honest arithmetic before you opt, and disciplined CMP-08/GSTR-4 filing after.
The bottom line
If you have read this far, you know more than most agents will ever tell you. The next step is simple: send us your case on WhatsApp, get the exact fee and timeline in writing, and decide with full information. That quote costs nothing.
Composition scheme — common questions
Who is eligible for the GST composition scheme?
What are the composition scheme tax rates?
Can a composition dealer claim input tax credit?
Can I sell to other states under composition?
Can I collect GST from my customers under composition?
What returns does a composition taxpayer file?
What is the late fee for GSTR-4?
How do I opt in to the composition scheme?
Can I sell through Amazon or Flipkart under composition?
Which businesses cannot opt for composition at all?
Is composition automatically cheaper than regular GST?
What if I cross the turnover limit during the year?
Not sure which scheme saves you money? Send us your numbers
WhatsApp your rough turnover, what you sell and who buys it. We run the composition-vs-regular arithmetic, tell you plainly which fits, and register you for ₹499 — with every future filing on our calendar.