The composition levy is an alternative method of levy of tax designed for small taxpayers. The objective of composition scheme is to bring simplicity and to reduce the compliance cost for the small taxpayers.
It allows small businesses to:
- Pay tax at a fixed lower rate
- File simplified returns
- Maintain less compliance
All persons registered under the Composition Scheme shall file Form GSTR-4 every quarter through the GST Common Portal or through a GST Facilitation Centre. GST return for those enrolled under Composition Scheme is due on the 18th of the month, succeeding a quarter. Hence, GST return for composition scheme would be due on April 18th, July 18th, October 18th and January 18th.
Tax Rates under Composition Scheme
| Type of Business | GST Rate |
| Manufacturer | 1% (0.5% CGST + 0.5% SGST) |
| Trader | 1% |
| Restaurant (not serving alcohol) | 5% |
| Service provider (up to ₹50 lakh scheme) | 6% |
Turnover Limits
- For regular businesses such as manufacturers and traders, the aggregate annual turnover is Rs. 1.5 crore.
- Rs.75 lakh for Himachal Pradesh and the North-Eastern states.
- For service providers, it is Rs.50 lakh.
Returns & Compliance
Composition dealers must file:
CMP-08
- Quarterly tax payment
- Due: 18th of next quarter
GSTR-4
Annual return
Due: 30th April of next financial year
Story: Composition Scheme
Professor asks: suppose Anjan runs a small grocery shop in your locality. His turnover is Rs.80 lakh. Should he follow full GST compliance?
Students reply: maybe not, sir?
Professor smiles.
Story of Anjan Variety Store
Anjan:
Turnover = Rs.80 lakh
Operates only within the state
Sells groceries locally
If he opts for regular GST:
- Must file GSTR-1 monthly
- Must file GSTR-3B monthly
- Maintain detailed records
- Claim and reconcile ITC
But under Composition Scheme:
- Pays only 1% tax
- Files CMP-08 quarterly
- Files GSTR-4 annually
- No ITC complexity
Professor explains:
Anjan prefers simplicity over ITC benefits. So, composition scheme is suitable for him.
Twist in Story
One student asks: Sir, what if Anjan wants to sell online on Amazon?
Professor replies: Then he cannot remain under composition scheme because interstate supply and e-commerce supply are not allowed.
One student asks: Can a business be changed to the regular GST scheme?
Professor replies: Certainly, when the turnover is more than the limit prescribed, or when the business is involved in interstate supplies or other ineligible activities.
The student asks: Sir, one important question- is a composition dealer allowed to issue a tax invoice?
Professor replies: No. Composition dealers should issue a Bill of Supply stating that they are composition taxable persons and not entitled to collect tax separately.
Remember: Composition Scheme is not allowed for
- Persons supplying goods that are not taxable under GST law.
- Persons making any Inter-State outward supplies of goods.
- Manufacturer of ice cream, pan masala, or tobacco
- A manufacturer of such goods or supplier of such services notified by the Government on the recommendations of the GST Council.
- Casual taxable persons or non-resident taxable persons.
- A person supplying services through an e-commerce operator who is required to collect TCS under the CGST Section 52.
Professor is continuing…. composition scheme is ideal for small, local, B2C businesses. But if your customers are businesses who need ITC, regular GST is better.
Takeaway:
Quick Comparison Table (Regular vs Composition)
| Basis | Regular Scheme (Big Business) | Composition Scheme |
| Sales Return | GSTR-1 | Not required |
| Tax Payment Return | GSTR-3B | CMP-08 |
| Annual Return | GSTR-9 | GSTR-4 |
| Audit Report | GSTR-9C (if applicable) | Not required |
| Filing Frequency | Monthly | Quarterly |
| Compliance Level | High | Low |