What is the GST Composition Scheme?
The GST Composition Scheme is a simplified tax option for small businesses. Instead of paying GST at standard rates, eligible businesses can pay a fixed percentage of their turnover. This scheme reduces compliance burdens, offering an easier way to fulfill tax obligations.
For the financial year 2025-26, the opt-in period is February 4 – March 31, 2025. Taxpayers who wish to enroll or continue under the scheme must file Form CMP-02 on the GST Portal before the deadline.
Who Can Opt for the Composition Scheme?
To qualify for the Composition Scheme, businesses must meet these conditions:
| Criteria | Details |
|---|---|
| Annual Turnover Limit | Up to ₹1.5 crore (₹75 lakh for special category states) |
| Eligible Businesses | Manufacturers, traders, and restaurants (excluding those serving alcohol) |
| Not Eligible | Service providers (except notified ones), inter-state suppliers, e-commerce sellers collecting TCS, and manufacturers of ice cream, tobacco, or pan masala |
Key Reminder: If a business exceeds the turnover limit during the financial year, it will have to exit the Composition Scheme and start paying GST under the regular structure.
Benefits of the Composition Scheme
The scheme offers multiple advantages for small businesses:
✅ Lower Tax Rates
- Manufacturers & Traders: 1% of turnover
- Restaurants (without alcohol): 5% of turnover
✅ Simplified Compliance
- Quarterly tax payment instead of monthly
- Fewer return filings (only GSTR-4 annually)
- Reduced paperwork and accounting efforts
✅ Better Cash Flow
- Since taxes are paid at a fixed rate on turnover rather than value addition, businesses enjoy improved liquidity.
How to Opt-In for the Composition Scheme?
Taxpayers who wish to enroll for FY 2025-26 must file Form CMP-02 on the GST Portal before March 31, 2025.
Step-by-Step Process to Apply:
1️⃣ Log in to the GST Portal: www.gst.gov.in
2️⃣ Navigate to: Services → Registration → Application to Opt for Composition Levy
3️⃣ Fill and Submit Form CMP-02
4️⃣ Verify Submission through electronic verification (OTP or DSC)
📌 Deadline: March 31, 2025 – Applications after this date will not be accepted for FY 2025-26.
Compliance Rules for Composition Taxpayers
Once a business is registered under the Composition Scheme, it must follow certain guidelines:
🔹 No Input Tax Credit (ITC) – Businesses cannot claim ITC on purchases.
🔹 Intra-State Sales Only – Inter-state transactions are not allowed.
🔹 Bill of Supply (Instead of Tax Invoice) – Since composition taxpayers cannot charge GST separately from customers, they must issue a Bill of Supply instead of a tax invoice.
🔹 Mandatory Display – Businesses must display ‘Composition Taxable Person’ on:
- Their business premises
- Every Bill of Supply they issue
Should You Opt for the Composition Scheme?
The Composition Scheme is beneficial for businesses that:
✔ Have a low turnover (under ₹1.5 crore)
✔ Want simpler tax compliance
✔ Do not deal in inter-state transactions
✔ Do not require input tax credit (ITC)
However, businesses dealing in inter-state trade or e-commerce supplies should carefully consider before opting in, as they won’t be eligible for this scheme.
Final Thoughts
The GST Composition Scheme is an excellent tax-saving option for small businesses looking for lower tax rates and simpler compliance. However, it’s essential to evaluate the limitations before opting in.