GST Composition Scheme: A Beginner's Guide

Quick Answer

The GST composition scheme lets small taxpayers (turnover ≤ ₹1.5 crore; ₹75 lakh for special category states) pay a fixed percentage of turnover as tax without ITC eligibility. It reduces compliance but bars interstate sales, e-commerce sales, and reverse charge claims.

Eligibility

• Aggregate turnover ≤ ₹1.5 crore (₹75 lakh for special category states).
• Not engaged in making inter-State supplies.
• Not selling through e-commerce operators liable for TCS.
• Manufacturer, trader, or restaurant service provider.

Rates

• Manufacturers and traders: 1% of turnover.
• Restaurants (not serving alcohol): 5% of turnover.
• Service providers: 6% of turnover (eligibility capped at ₹50 lakh).

Key steps to opt in

1. File CMP-02 on the GST portal before the start of the financial year.
2. Pay tax via CMP-08 quarterly by the 18th of the next month.
3. File annual return GSTR-4 by 30 April of the next financial year.

Common pitfalls

• Opting in but still making inter-state supplies.
• Crossing the turnover threshold mid-year (must exit the scheme).
• Claiming ITC on purchases (not allowed under composition).

Next steps

Talk to our team for an eligibility check before opting in or out of the composition scheme.

When this guide applies

Use this guide when you need a practical, plain-English explanation of the topic for an Indian business or taxpayer. We assume you already know the basics of Indian taxation and compliance — this guide focuses on the specific situations, deadlines, and pitfalls that matter in real filings.

Step-by-step process

1. Confirm the trigger event — turnover threshold, registration requirement, or compliance deadline that brings this topic into scope for your business.
2. Gather the documents you need (PAN, Aadhaar, GSTIN, bank statements, or the specific records called out in the linked forms).
3. File or register through the official portal (income tax e-filing, MCA, GST, FSSAI, or the relevant regulator). Keep acknowledgement numbers.
4. Pay any fee or tax due. Note the challan reference for your records.
5. Track the SLA — most approvals arrive in 3-30 working days; escalate through the regulator’s grievance portal if delayed.

Common pitfalls

• Filing after the due date without paying the late fee — penalty compounds per month under Section 234F for ITR, per return period for GST.
• Using the wrong ITR form or business code — leads to defective return notice under Section 139(9) and a fresh round of filing.
• Ignoring state-specific requirements (professional tax, shop & establishment, state GST registration) when operating across multiple states.

When to escalate

Talk to an expert if the situation involves cross-border transactions, notice from the department, or disputed turnover. Self-filing works for the routine cases but escalates quickly once a notice arrives.

Next steps

For a personalised check, use our eligibility wizards and free code search tools. To file end-to-end, see the linked service pages on FinTax24.