GST Composition Scheme: Rules, Turnover Limit, Rate, BenefitsComprehensive Guide for FY 2025-26

Eligibility Criteria

Taxpayers must meet specific criteria to opt for the Composition Scheme.

• Turnover must be below ₹1.5 crore in the previous financial year.

• For North-Eastern states and Himachal Pradesh, the limit is ₹75 lakh.

• Aggregate turnover includes all businesses under the same PAN.

Service Providers

Service providers have specific conditions under the scheme.

• Can supply services up to 10% of turnover or ₹5 lakh, whichever is higher.

• Must adhere to the turnover limits applicable to their region.

• Service turnover is calculated separately from goods.

Registration Process

Steps to register for the Composition Scheme.

• File Form CMP-02 on the GST portal before 31st March 2026.

• Ensure all businesses under the same PAN are registered collectively.

• Maintain compliance with all GST regulations.

Worked Example

Illustration of eligibility based on turnover.

• A trader with a turnover of ₹1.4 crore in FY 2024-25 is eligible.

• Service income of ₹6 lakh is permissible if total turnover is ₹1.5 crore.

• Eligibility confirmed by filing CMP-02 before the deadline.

Ineligible Businesses

Certain businesses are excluded from the scheme.

• Manufacturers of ice cream, pan masala, or tobacco.

• Businesses making inter-state supplies.

• Casual taxable persons and non-resident taxable persons.

E-commerce Suppliers

Restrictions on e-commerce suppliers.

• Suppliers through platforms collecting TCS under Section 52.

• Must not engage in inter-state e-commerce transactions.

• Cannot opt if supplying through e-commerce operators.

Notified Goods and Services

Goods and services notified by the government.

• Specific goods/services as per GST Council recommendations.

• Check latest notifications for updated exclusions.

• Compliance with government notifications is mandatory.

Worked Example

Example of ineligibility due to business type.

• A manufacturer of tobacco products cannot opt for the scheme.

• An e-commerce seller with inter-state sales is ineligible.

• Eligibility must be reassessed if business activities change.

General Conditions

Basic conditions to be fulfilled by taxpayers.

• No Input Tax Credit (ITC) can be claimed.

• All businesses under the same PAN must register collectively.

• Cannot supply goods not taxable under GST.

Reverse Charge Mechanism

Handling transactions under reverse charge.

• Pay tax at normal rates for reverse charge transactions.

• Maintain records of reverse charge transactions separately.

• Ensure compliance with reverse charge provisions.

Signage and Billing

Requirements for business signage and billing.

• Display 'composition taxable person' at business premises.

• Include 'composition taxable person' on bills of supply.

• Ensure all signage and billing comply with GST rules.

Worked Example

Example of compliance with conditions.

• A retailer with multiple stores registers all under one PAN.

• Displays required signage at each store location.

• Issues compliant bills of supply for all transactions.

Filing Form CMP-02

Steps to opt for the scheme using CMP-02.

• Log into the GST portal with valid credentials.

• Navigate to the 'Services' section and select 'Registration'.

• Submit Form CMP-02 before 31st March 2026.

Declaration Requirements

Declarations to be made while opting.

• Declare compliance with all scheme conditions.

• Acknowledge ineligibility for Input Tax Credit.

• Confirm registration of all business segments.

Post-Application Process

Steps after submitting the application.

• Receive confirmation from GST authorities.

• Update business records to reflect scheme status.

• Ensure ongoing compliance with scheme rules.

Worked Example

Example of opting for the scheme.

• A small trader files CMP-02 on 15th March 2026.

• Receives confirmation and updates business signage.

• Begins issuing compliant bills of supply immediately.

Bill of Supply

Requirements for issuing a bill of supply.

• Include 'composition taxable person' on each bill.

• Do not charge GST separately on the bill.

• Ensure all bills comply with GST invoicing rules.

Record Keeping

Maintaining records of all transactions.

• Keep detailed records of all sales and purchases.

• Ensure records are accessible for GST audits.

• Update records regularly to reflect current transactions.

Worked Example

Example of compliant billing practices.

• A composition dealer issues a bill of supply for ₹10,000.

• Includes required wording and omits separate GST charge.

• Maintains a record of the transaction in the business ledger.

Applicable Rates

GST rates applicable under the Composition Scheme.

• 1% for manufacturers and traders of goods.

• 5% for restaurants not serving alcohol.

• 6% for service providers under the scheme.

Calculation of Tax

How to calculate tax under the scheme.

• Apply the applicable rate to the turnover.

• Ensure accurate calculation to avoid penalties.

• Maintain records of tax calculations for audits.

Worked Example

Example of tax calculation for a trader.

• A trader with a turnover of ₹1 crore pays 1% GST.

• Total GST payable is ₹1 lakh for the financial year.

• Records all tax payments in the business ledger.

Payment Deadlines

Deadlines for making GST payments.

• Quarterly payments are required under the scheme.

• Ensure payments are made by the 18th of the month following the quarter.

• Late payments may incur interest and penalties.

Payment Methods

Methods available for making GST payments.

• Online payment through the GST portal.

• Payment via authorized banks and financial institutions.

• Ensure payment confirmation is received and recorded.

Worked Example

Example of making a GST payment.

• A dealer with a quarterly tax liability of ₹25,000 pays online.

• Payment is made by the 18th of the following month.

• Records payment confirmation in the business ledger.

Return Filing Requirements

Requirements for filing GST returns under the scheme.

• File GSTR-4 annually by 30th April following the financial year.

• Maintain accurate records to support return filings.

• Ensure all returns are filed on time to avoid penalties.

Annual Return

Details of the annual return filing process.

• GSTR-9A is the annual return for composition dealers.

• Include details of all sales, purchases, and tax payments.

• File by the due date to ensure compliance.

Worked Example

Example of filing an annual return.

• A dealer files GSTR-4 by 30th April 2026.

• Includes all required details and supporting documents.

• Receives confirmation of successful filing from GST authorities.

Simplified Compliance

Benefits of simplified compliance under the scheme.

• Reduced paperwork and filing requirements.

• Lower compliance costs for small businesses.

• Simplified tax calculations and payments.

Lower Tax Rates

Advantages of lower tax rates for composition dealers.

• Pay a fixed percentage of turnover as tax.

• Lower tax liability compared to regular GST rates.

• Predictable tax payments help in financial planning.

Worked Example

Example of tax savings under the scheme.

• A trader with ₹1 crore turnover saves ₹2 lakh in taxes.

• Pays 1% under the scheme vs. 18% regular GST.

• Uses savings for business expansion and growth.

No Input Tax Credit

Limitations due to lack of ITC eligibility.

• Cannot claim credit for GST paid on purchases.

• Higher effective cost for goods and services.

• May affect competitiveness compared to regular taxpayers.

Limited Business Scope

Restrictions on business activities under the scheme.

• Cannot engage in inter-state sales.

• Limited to specified goods and services.

• May restrict business growth and expansion.

Worked Example

Example of disadvantages faced by a dealer.

• A dealer cannot claim ITC on ₹10 lakh purchases.

• Effective cost increases by ₹1.8 lakh (18% GST).

• Considers switching to regular scheme for growth.