GST Composition Scheme registration - lower rates, simpler compliance

The GST Composition Scheme is a simplified compliance scheme under Section 10 of the CGST Act, 2017. Small taxpayers with turnover up to ₹1.5 crore can opt to pay a flat tax rate on their turnover (1% for manufacturers, 3% for restaurants, 5% for other suppliers) and file a single quarterly return (GSTR-4) instead of monthly returns. The trade-off is that composition dealers cannot claim Input Tax Credit (ITC) on purchases and cannot make inter-state supplies or sell through e-commerce platforms.

The turnover limit is ₹1.5 crore per financial year for most states, raised from ₹1 crore effective 1 April 2024 under CGST Amendment Rules, 2024. For special category states (Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Uttarakhand, Himachal Pradesh), the limit is ₹75 lakh. The turnover is computed based on the aggregate value of all taxable supplies and exempt supplies made by the taxpayer across all business verticals in the state.

If you are already a regular GST taxpayer, file Form GST CMP-01 on the GST portal before 31 March for the scheme to apply from 1 April of the next financial year. If you are applying for fresh GST registration, select the composition scheme option in Form GST REG-01. The application must be filed before the beginning of the financial year. The GST officer will issue an order accepting or rejecting the application.

The tax rates under the composition scheme are: (1) 1% of turnover (0.5% CGST + 0.5% SGST) for manufacturers of goods, (2) 3% of turnover (1.5% CGST + 1.5% SGST) for restaurants not serving alcohol, and (3) 5% of turnover (2.5% CGST + 2.5% SGST) for other eligible suppliers. These rates are notified under Notification No. 1/2017, 2/2017, and 36/2017 - Central Tax (Rate).

No. Composition scheme dealers cannot claim Input Tax Credit on any purchase, including purchases of inputs, capital goods, and input services. This is the fundamental trade-off of the scheme: you pay a flat rate on turnover, but you give up the ability to claim ITC. Before switching, calculate whether your actual ITC savings under regular GST exceed the additional tax you would pay under composition.

Form GST CMP-01 is the application form for opting for the GST Composition Scheme. It is filed on the GST portal by an existing regular taxpayer who wants to switch to the composition scheme. The form requires: (1) GSTIN, (2) details of business activities, (3) the applicable tax rate, (4) a declaration that the aggregate turnover is within the prescribed limit, and (5) details of the authorized signatory.

Form GST CMP-02 is the application for switching back from the Composition Scheme to the regular GST scheme. A composition dealer can switch to regular GST at any time during the financial year (not restricted to the beginning of the year). The application is filed on the GST portal, and the switch takes effect from the beginning of the quarter in which the application is accepted.

No. Composition scheme dealers are restricted to intra-state supplies only. If a composition dealer makes an inter-state supply, IGST becomes chargeable at the applicable regular rate. Repeated inter-state supplies while under composition can lead to the scheme being cancelled by the officer. For inter-state trade, you must remain under regular GST.

No. Section 10(2)(e) of the CGST Act, 2017 explicitly excludes persons supplying through e-commerce operators from the composition scheme. This means you cannot sell on Amazon, Flipkart, Shopify (if using their logistics), Swiggy, Zomato, or any platform that qualifies as an e-commerce operator. You must remain under regular GST if you sell through such platforms.

Only restaurant service providers (not serving alcohol) can opt for the composition scheme. All other service providers - IT companies, consultants, lawyers, architects, chartered accountants, digital marketing agencies - are excluded under Section 10(2)(d) of the CGST Act, 2017. If your business primarily provides services other than restaurant services, the composition scheme is not available to you.

Composition scheme dealers file only two returns: (1) GSTR-4 - a quarterly return due by the 25th of the month following each quarter-end (25 July for Q1, 25 October for Q2, 25 January for Q3, 25 April for Q4), and (2) GSTR-9A - an annual return due by 31 December of the next financial year. They do NOT file monthly GSTR-1 or GSTR-3B returns.

Generally, no. Section 10(4) of the CGST Act, 2017 and Rule 3 of the CGST Rules specify that opting for composition is only allowed at the beginning of the financial year. File GST CMP-01 before 31 March for the scheme to apply from 1 April. However, there are limited exceptions: if you obtain registration during the year and your turnover is within the limit, you can opt for composition at the time of registration.

If your aggregate turnover exceeds ₹1.5 crore in a financial year, you must switch back to regular GST. You should file Form GST CMP-02 to switch before the end of that financial year. Continuing under composition with excess turnover is a violation of Section 10(1) and may result in the scheme being cancelled by the tax officer under Section 29.

GSTR-4 is the quarterly return filed by composition scheme dealers. It has only four sections: (1) details of outward supplies, (2) details of tax payable, (3) details of payment of tax, and (4) certification by a CA or CMA (if turnover exceeds ₹1 crore). GSTR-3B is the monthly return filed by regular taxpayers with multiple sections including ITC claims, tax payment details, and interest/late fee calculations. GSTR-4 is significantly simpler.

Yes. Composition scheme dealers must pay tax on reverse charge supplies (such as services from an unregistered supplier, import of services, etc.) at the applicable regular rates, not the composition rates. This is tracked in Table 4 of GSTR-4. The tax on reverse charge is paid separately and is not covered by the flat composition rate on turnover.

GSTR-9A is the annual return for composition scheme dealers, due by 31 December of the next financial year. It consolidates the four quarterly GSTR-4 returns filed during the year. It includes: details of outward supplies, inward supplies (without ITC), tax payable, and payments made. The return must be certified by a CA or CMA if the aggregate turnover exceeds ₹1 crore in the preceding financial year.

The late fee for delayed filing of GSTR-4 is ₹200 per day (₹100 CGST + ₹100 SGST) subject to a maximum amount. The late fee applies from the day after the due date (26th of the month after quarter-end) until the return is filed. Unlike regular GST returns, there is no late fee for nil GSTR-4 if no supplies were made during the quarter - but you must still file a nil return.