Lower rate for small businesses

Category: GST Services. From ₹1,499. Typical timeline: 3–5 days.

Overview

The Composition Scheme lets small taxpayers pay GST at a fixed, lower percentage of turnover instead of the standard rate structure, in exchange for simplified quarterly payment and annual return filing and giving up the right to claim input tax credit or collect tax separately from customers. It significantly reduces compliance burden for small traders, manufacturers and restaurants.

Who needs it

• Small traders and retailers with intra-state supply and turnover within the threshold
• Small restaurants (not serving alcohol) wanting simplified quarterly tax payment
• Small manufacturers below the turnover limit who do not need to pass on input tax credit to customers
• Small service providers eligible under the separate services composition scheme (turnover up to ₹50 lakh)

Eligibility

• Aggregate turnover in the preceding financial year must not exceed ₹1.5 crore (₹75 lakh for special category states) for goods; ₹50 lakh for the services composition scheme
• Not applicable to businesses making inter-state outward supplies (with limited exceptions for services)
• Not available to manufacturers of notified goods like ice cream, pan masala and tobacco
• E-commerce operators' sellers, casual taxable persons and non-resident taxable persons cannot opt for the scheme

Documents required

• GST registration details and turnover data for the preceding financial year
• Declaration of no inter-state outward supply
• Business activity details to confirm eligibility (goods/services/restaurant)
• Stock statement as on the date of opting into the scheme

Process

1. Eligibility verification — Confirm turnover, nature of business and absence of disqualifying conditions.
2. Filing Form CMP-02 — Opt into the composition scheme by filing CMP-02 on the GST portal before the start of the financial year (or at registration for new taxpayers).
3. Stock intimation — File Form ITC-03 to reverse input tax credit on stock held as on the date of opting in, if switching from the regular scheme.
4. Ongoing compliance — Pay tax quarterly via CMP-08 and file the annual GSTR-4 return.

Government fees

• Form CMP-02 filing: Nil — no government fee for opting into the scheme
• GST payable: 1%-6% of turnover depending on business category, in place of standard GST rates

Professional fee

Kanoons charges ₹1,499 for composition scheme opt-in filing, eligibility assessment and ITC reversal computation.

Timeline

Opting into the scheme is typically completed in 3–5 working days, though the scheme itself applies from the start of the relevant financial year or from the date of new registration.

Deliverables

• Filed Form CMP-02 acknowledgment
• ITC-03 reversal computation and filing (if applicable)
• Quarterly CMP-08 payment summary going forward
• Annual GSTR-4 filing support

Frequently asked questions

Can a composition dealer issue a tax invoice?

No, a composition dealer must issue a "Bill of Supply" instead of a tax invoice, since they cannot charge GST separately from customers.

Can a composition dealer claim input tax credit?

No, businesses under the composition scheme cannot claim input tax credit on their purchases.

Can a composition taxpayer make inter-state sales?

No, generally composition scheme taxpayers dealing in goods cannot make inter-state outward supplies; there are limited relaxations for the services composition scheme.

Common mistakes

• Opting in without checking that all business verticals under the same PAN are within the turnover limit
• Making inter-state sales while under the scheme, leading to disqualification
• Charging GST separately on invoices instead of issuing a Bill of Supply
• Not filing CMP-08 quarterly, leading to interest on delayed tax payment

Penalties for non-compliance

• A composition taxpayer who was ineligible but availed the scheme is liable to pay the differential tax along with a penalty equivalent to the tax amount under Section 10(5)
• Late filing of GSTR-4 attracts late fees under the CGST Act
• Charging tax on the invoice while under composition scheme can lead to demand and penalty for wrongful tax collection

Legal references

• Central Goods and Services Tax Act, 2017, Section 10 — composition levy scheme
• CGST Rules, 2017, Rule 3-7 — conditions and procedure for composition levy
• Notification No. 2/2019 – Central Tax (Rate) — composition scheme for services