GST Composition Scheme — simplified tax for small businesses

What is the GST Composition Scheme?

The GST Composition Scheme (Composition Levy) under Section 10 CGST Act 2017 is an optional simplified regime for small businesses. A composition dealer pays GST at a fixed low rate on total turnover and files minimal returns, instead of maintaining transaction-wise records and filing monthly returns.

Eligibility and turnover limits

Additional eligibility conditions: single-state operations (no inter-state outward supplies), no supply of GST-exempt goods, and no supply through e-commerce operators collecting TCS.

Key restrictions — check these before opting in

1. No Input Tax Credit

A composition dealer cannot claim ITC on any purchases. GST paid on raw materials, capital goods, and services becomes a cost. For businesses with significant input costs, this can make the composition scheme more expensive than the regular scheme overall. See the ITC guide to estimate what you'd be forfeiting.

2. No inter-state outward supplies (goods)

Goods-based composition dealers cannot sell to customers in other states. If you do inter-state sales, you must register as a regular taxpayer. Note: inter-state purchases are allowed.

3. Bill of Supply — not a Tax Invoice

A composition dealer cannot charge GST from customers, so they must issue a Bill of Supply bearing the words "Composition taxable person, not eligible to collect tax on supplies." B2B buyers cannot claim ITC on these purchases — a major deterrent for business-to-business sales.

Returns under the Composition Scheme

Regular taxpayers file GSTR-1 + GSTR-3B each month — up to 24 filings/year. Composition dealers file CMP-08 × 4 + GSTR-4 × 1 = 5 filings/year.

How to opt into the Composition Scheme

1. File CMP-02 on the GST portal (Services → Registration → Application to opt for Composition Levy) — before the start of the financial year you want the scheme to apply.
2. File ITC-3 within 60 days of opting in — declare and reverse ITC on stock held on the opt-in date.
3. Switch to Bills of Supply from the opt-in date — stop issuing tax invoices.
4. Display composition status prominently at your place of business and on all Bills of Supply.

Composition Scheme vs regular GST — which is better?

Opt for Composition if:

• Turnover is well within the limit and likely to stay there.
• Customers are primarily end consumers (B2C) who don't need ITC.
• Input costs are low relative to sales — so lost ITC is minimal.
• You operate in a single state.

Stick with regular GST if most buyers are registered businesses who need ITC from you, you have high purchase costs, or turnover is approaching the ₹1.5 crore threshold.

Billing for composition dealers

Your billing software must support Bills of Supply as a distinct document type. BillRaja generates correctly labelled Bills of Supply for composition taxpayers and tax invoices for regular taxpayers, and tracks quarterly turnover to help you stay within scheme limits. Use the GST calculator to model whether the composition rate saves tax before you decide to opt in.