General information, not professional advice. GST rules, rates and due dates change by notification. Check the current position on the GST Portal or with your CA before you act on anything here.
The short version
- Composition is for small taxpayers: a flat percentage of turnover instead of regular GST on each supply.
- Rates: 1% for traders, 1% for manufacturers, 5% for restaurants not serving alcohol, and 6% under the scheme for eligible service providers.
- You cannot charge GST to your customers, cannot claim input tax credit, and cannot make inter-state outward supplies.
- You issue a bill of supply carrying the prescribed declaration, not a tax invoice.
- You file CMP-08 quarterly by the 18th and GSTR-4 annually by 30 June.
What the scheme is
Instead of charging GST on every supply, collecting it and claiming credit on your purchases, you pay a flat percentage of your turnover out of your own pocket and file far less. It is designed for small businesses selling mainly to end customers.
Who can opt in
- Aggregate turnover in the previous financial year within the notified limit, which is ₹1.5 crore for most states and ₹75 lakh for the special category states.
- A separate scheme for service providers with turnover up to ₹50 lakh.
- No inter-state outward supplies. You may buy from other states, but you may not sell to them.
- No supplies through an e-commerce operator that collects tax at source.
- Not a manufacturer of the notified excluded goods, such as ice cream, pan masala and tobacco.
- All registrations under the same PAN have to be in the scheme together.
You opt in by filing CMP-02 before the start of a financial year, and a new registration can opt in at registration.
The rates
| Type of business | Rate on turnover |
|---|---|
| Traders and retailers | 1% (0.5% CGST + 0.5% SGST), on taxable turnover |
| Manufacturers | 1% (0.5% + 0.5%) |
| Restaurants not serving alcohol | 5% (2.5% + 2.5%) |
| Other eligible service providers | 6% (3% + 3%) |
What you give up
- No input tax credit. The GST on your purchases becomes part of your cost.
- No tax charged to customers. Which is fine for a walk-in customer and a problem for a registered buyer, because they get no credit from you.
- No inter-state sales. A single order from another state does not fit the scheme.
- Reverse charge still applies. Where RCM is triggered on your purchases, you pay it at the normal rate.
Bills and returns
You issue a bill of supply, not a tax invoice, and it must carry the declaration that you are a composition taxable person and not eligible to collect tax on supplies. Your returns are CMP-08, a quarterly statement with the payment, due by the 18th after each quarter, and GSTR-4, the annual return, due by 30 June following the financial year.
How to decide
Three questions settle it:
- Who buys from you? Mostly end consumers: the scheme works, because nobody is asking you for credit. Mostly registered businesses: they will prefer a supplier who gives them credit.
- How much GST do you pay on purchases? A high-purchase, low-margin trade loses more by forgoing credit than it saves in paperwork.
- Will you sell across state lines? If that is the plan, the scheme is a dead end.
Composition in the app
Set your registration type in Settings and AawazAI issues a bill of supply with the composition declaration instead of a tax invoice, and it does not print a tax line you are not allowed to charge. The khata, stock, purchase records and reports work exactly as they do for a regular taxpayer, and your CA gets the same month-end file.
Bills that match your registration
Tell AawazAI your registration type once and every bill comes out right: tax invoice, bill of supply with the composition declaration, or a cash memo.
Frequently asked questions
What is the turnover limit for the GST composition scheme?
₹1.5 crore of aggregate turnover in the previous financial year for most states, ₹75 lakh for special category states, and a separate scheme for service providers with turnover up to ₹50 lakh.
What rate do composition dealers pay?
1% for traders and manufacturers, 5% for restaurants not serving alcohol, and 6% under the scheme for other eligible service providers, charged on turnover rather than on each supply.
Can a composition dealer charge GST on the bill?
No. A composition taxpayer issues a bill of supply with the prescribed declaration and cannot collect GST from customers, which also means the customer gets no input tax credit.
Can a composition dealer sell to another state?
No. Inter-state outward supplies are not allowed under the scheme, although you may purchase from other states.
Which returns does a composition dealer file?
CMP-08 quarterly with the payment, due by the 18th after each quarter, and GSTR-4 annually by 30 June following the financial year.