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GST Composition Scheme: Eligibility, Benefits & Tax Rates In India

Pragya Pathak

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Updated: 22-04-2026 at 5:30 AM

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500K+ Users

The Composition Scheme under the Goods and Services Tax (GST) framework is a special scheme created for small business entities. The scheme not only reduces compliance burden from taxpayers’ shoulders, but also allows them to pay tax at a fixed rate calculated on the annual turnover of their businesses. This specific feature makes the scheme affordable for small traders, manufacturers, and other business entities.

As the scheme requires minimal paperwork and has deliberately focused on making the filing process easy, it promotes ease of doing business and encourages people to pursue entrepreneurship.

Read the article to learn more about the specifics of the GST Composition Scheme, ranging from its meaning and turnover limit to eligibility criteria and application process, including information on the GST composition dealer meaning.

GST Compensation Scheme Overview

The table below summarises key details of the GST Composition Scheme that one should know.

Meaning	Simplified tax scheme for small taxpayers.
Objective	Reduced compliance and easy tax procedures for small business entities.
Turnover limit	Up to Rs 1.5 crore (Rs 75 lakh for special category states), and Rs 50 lakh for services.
Eligible parties	Manufacturers, traders, restaurants that do not serve alcohol, and small service providers.
Ineligible parties	Inter-state suppliers, e-commerce sellers, manufacturers of goods like pan masala, tobacco, ice cream, or other non-taxable goods under the GST mechanism.
Tax rates	1% for traders and manufacturers, 5% for restaurants, and 6% for service providers.
Tax calculated on	On the total turnover of the business.
What is not permitted?	ITC claim, TCS, etc.
Type of invoice issued	Bill of Supply.

What Is The GST Composition Scheme In India?

The Composition Scheme is a simplified GST option created especially for small businesses, so consider it an ideal GST registration type for small companies. Businesses that want to avoid the complexities of tax compliance can opt for this type of registration to make their lives easier. Following the provisions of this composition scheme, small business entities can pay tax at a lower rate, file quarterly returns instead of monthly returns, and keep minimal records.

While it is simpler than other schemes in the Goods and Services Tax framework and offers benefits, it has its fair share of limitations, such as the inability to claim Input Tax Credit (ITC) and restricted entry.

Format Of The GST Composition Bill

The GST Composition Bill comprises numerous important things. The usual format of a GST Composition bill is as follows:

First comes the header indicating that the bill is a GST Composition Bill.
The bill should have the details of the business, like name, address, GST Identification Number (GSTIN), etc.
Details of the customer, like the customer’s name, address, and GSTIN if it is a B2B transaction.
A unique invoice number and date of issuance of the bill for tracking purposes.
Detailed list of goods or services supplied, along with the description, quantity, rates, and total amounts.
Total amount payable, including the taxes and discounts, if any.
Terms of the payment and accepted methods, including due dates and terms of credit.
Sign or stamp of the authorised person from the business for its validity and authenticity.

GST Composition Scheme Turnover Limit

The authorities have set different turnover limits for different types of business entities. The GST Composition Scheme limit is laid down below in a tabular format:

Type of the business entity	GST composition scheme limit 2026
Manufacturers	Up to Rs 1.5 crore.
Traders	Up to Rs 1.5 crore.
Restaurants that do not serve alcohol	Up to Rs 1.5 crore.
Service providers (special composition scheme)	Up to Rs 50 lakh.
Businesses operating in special category states, like the North-Eastern Regions	Up to Rs 50 lakh.

Also Read On GST Frauds in India- Types, Penalties, Cases & How to Report

GST Composition Scheme Rate

The GST Composition scheme rates are based on a business’s turnover, as mentioned below for one’s reference

Type of business entity	CGST (Central Goods and Services Tax)	SGST (State Goods and Services Tax)	Total
GST composition scheme tax rate for traders and manufacturers	0.5%	0.5%	1.0%
Restaurants that do not serve alcohol	2.5%	2.5%	5.0%
Other service providers	3.0%	3.0%	6%

GST Composition Scheme Forms

There are various types of forms serving various purposes that businesses are required to fill out as per their needs and requirements. Therefore, it is extremely important to understand the basics of all the relevant forms. We have created a brief table of forms for your reference that will help you in selecting the right form as and when needed:

Name or Number of the form	Description
GST CMP-01	Concerning intimation to opt for the GST Composition Scheme (this is for existing taxpayers under the old regime).
GST CMP-02 form	Related to the intimation to opt for the Composition Scheme (for unregistered entities or individuals).
GST CMP-03	Related to the submission of stock or inward supply details from unregistered sources.
GST CMP-04	For exiting from the GST Composition Scheme.
GST CMP-05	For the show cause notice for violation of the GST Act rules.
GST CMP-06	Replying to the show cause notice.
GST CMP-07	For issuance of an order for acceptance or rejection of the response in form GST CMP-06.
GST REG-01	For registration under the GST Composition Scheme.
GST ITC-01	For reporting inputs from the composition registered supplier (raw materials, semi-finished, and finished goods).

Who Is Eligible For The Composition Scheme Under GST?

Businesses are required to fulfil all eligibility conditions to apply for the scheme. The criteria of Composition Scheme eligibility GST are as follows:

The main condition is concerning the total turnover limit, like for businesses, it is up to Rs 1.5 crore (Rs 75 lakh for special category states), and for service providers, it is up to Rs 50 lakh.
The scheme is open to manufacturers, traders, restaurants that don’t serve alcohol, and small service providers.

Some of the conditions that everyone is supposed to fulfil while applying for the GST Composition scheme are:

The dealer cannot opt for claiming Input Tax Credit (ITC).
A dealer under the scheme cannot supply non-taxable goods under the GST framework, like alcohol.
Taxpayer is required to pay tax at a normal rate for transactions under the Reverse Charge Mechanism.
If a taxable individual has different types of businesses under the same PAN, they will be required to register all their businesses collectively.
The taxpayer will have to mention ‘Composition Taxable Person’ on every bill that they issue.
As per the Central Goods and Services Tax Amendment Act of 2018, manufacturers and traders can also supply services to an extent of 10 of their turnover or Rs 5 lakhs, whichever is higher.

Exclusion Criteria

Certain business entities cannot apply to become a part of the GST Composition Scheme. The types of prohibited business entities are as follows:

Manufacturers that make ice cream, pan masala, or tobacco.
Businesses that supply their goods from one state to another.
A Causal Taxable Person (CTP) or Non-Resident Taxable Person (NRTP) cannot apply for the scheme.
Businesses or individuals that operate by listing their goods or services on an e-commerce platform cannot apply for this particular GST scheme.

How To Opt For The Composition Scheme In The GST Portal?

Eligible people can apply to become a part of the Composition Scheme under GST through an online portal. The process is broken down into steps below for one’s better understanding and clarity:

Step 1: Please visit the official website of the GST portal and log in using your credentials, like username and password.

Step 2: Go to the ‘Services’ section, select ‘Registration’, and then click on the ‘Application to opt for consumer levy’ option.

Step 3: Familiarise yourself with the terms and conditions. Fill in the required information, like place of business, name of authorising signatory, and others.

Step 4: Click on ‘Submit with DSC’ if you are a part of a business entity or an LLP (Limited Liability Partnership). Others need to select either the ‘Submit with EVC’ option or the ‘Submit with e-signature’ option.

Step 5: Recheck all information filled out until this point and then click on ‘Submit’.

How Should GST Payment Be Made By A GST Composition Dealer?

GST composition dealer meaning is simply any registered taxpayer who buys and sells goods or does other business-related activities, like manufacturing. So, in short, a GST composition dealer is a small taxpayer who pays GST at a fixed rate on their business’s annual turnover.

A composition dealer follows a different GST payment process that has certain components, like the dealer is responsible for paying GST on their own for the supplies that they provide, as here customers cannot be charged for GST.

The dealer is required to file quarterly GST returns using form CMP-08 and annual returns using form GSTR-4 by the 30th of April of the upcoming financial year.

Benefits Of The GST Composition Scheme

There are several composition schemes with GST benefits, some of which are laid down below for one’s reference:

One of the major advantages of being a part of the GST Composition scheme is the minimal compliance requirements. Under this scheme, taxpayers can file quarterly returns using form CMP-08 and an annual return using GSTR-4. This not only reduces paperwork but also makes it easier for small businesses to manage their taxes well, without the need for a professional.
The composition scheme offers concessional tax rates to the taxpayers enrolled in the scheme. These tax rates are much lower than the standard Goods and Services Tax rates, which helps businesses in reducing their tax-related liabilities.
Tax under this scheme is calculated on the total annual turnover rather than value added. This not only eliminates the need for complex calculations but also means that business owners don't have to keep track of every single invoice.

GST Composition Vs Regular GST

Key differences between the Composition Scheme under GST and regular GST are mentioned below in a tabular format:

Component	Composition scheme	Regular GST
Purpose	Simplified compliance for small taxpayers.	Standard taxation system for all kinds of taxpayers.
Turnover limit	Up to Rs 1.5 crore (Rs 75 lakh for special category states), and Rs 50 lakh for services.	No turnover limit.
Tax rate	Fixed lower rate based on the business’s annual turnover.	Standard GST rates fixed at 0%, 5%, 12%, etc.
Tax calculated on	Calculated on the total turnover of the business.	Calculated on the value of supply.
Is Input Tax Credit allowed?	Not allowed.	Allowed.
Is GST Collection allowed?	Cannot collect from customers.	Can collect GST from customers.
Suitable for	Small local business entities.	Large multi-state business entities.
Is switching allowed?	Yes, one can switch to regular voluntarily.	No, cannot switch to the composition scheme if conditions are not met.

Conclusion

The GST Composition Scheme is a unique scheme created under the GST framework, specifically for small taxpayers, like small manufacturers, traders, and service providers. The most attractive features of this scheme are the lower tax rates based on the business’s annual turnover, quarterly filing of returns, and simplified processes, making it ideal for businesses with a stable turnover.

Along with the benefits, the schemes have their own fair share of limitations that can become disadvantages for businesses in the future, especially concerning their growth. Therefore, one must familiarise oneself with all the specifics of this scheme and only then apply to become a part of it.

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