GST Composition Scheme: Latest Updates, Eligibility

Preface: This post was originally published in 2022 and has been updated on September 05, 2025, to provide you with the most current and accurate information.

GST composition scheme refers to a simple-to-understand initiative under GST. Meant for the small taxpayers, this scheme allows one to brush off the tiring formalities of GST and pay the returns at a fixed turnover rate. Any taxpayer whose annual turnover is less than INR 1.5 Crore can earn the benefits of this scheme. 

On 28th May 2021, the GST Council Meeting was organized and the following reliefs were added to this composition initiative:

1. For those who have filled CMP-08 in January March 2021 quarter on which interest wasn’t charged due to some reason or another, no interest was necessary until 3rd May. Afterward, those who filed the forms after 17th June, enjoyed 9% reduced interest rates. And those who came later enjoyed an interest rate reduction of 18%.
2. In light of the COVID 19 pandemic, the due date of GSTR-4 for the financial year 2020-21 was extended till 31st July 2021.
3. To ensure that a maximum number of taxpayers do file their GSTR-4 returns, the government of India restricted the fine to INR 500 for NIL filing.

But these updates are old. What is the GST composition scheme? Let us understand the nitty-gritty about this initiative through this article.

What is the GST Composition Scheme?

Taxpayers with annual turnover less than INR 1.5 Crore can opt for a scheme that lets them get rid of the tiring GST formalities and instead, let them file one return. That scheme is called the Composition scheme.

As per this scheme, a taxpayer can inform the tax authorities about their intention behind registration under this scheme.  

A Composition dealer has a permit to supply services up to 10 percent of the turnover or INR 5 Lakh. In simple words, the seller can directly pay the GST on the sale price of a service to the government without getting the invoice involved. It prevents any undue complications and helps with the smooth running of the business.

However, given the nature of this scheme, not everyone is at liberty to benefit from it.

Who does not have permission to opt for the Composition Scheme?

As per the rules that define the intricacies of this scheme, the following entities are barred from opting it:

Ice Cream, Tobacco, and Pan Masala Manufacturers

1. entities that make inter-state supplies
2. A casual taxable person or an NRI taxable person
3. Businesses that rely on E-Commerce services to supply their goods.

Furthermore, there are quite a few conditions that have to be met before implementing this scheme.

Conditions for benefitting from the GST Composition Scheme

The following are the conditions that one has to keep in mind when choosing this scheme:

1. A dealer opting for this scheme cannot claim any input tax credit
2. Supplying goods not taxable under GST is not permitted.
3. The taxpayer must pay normal rates for transactions under Reverse Charge Mechanism
4. For those running multiple types of businesses, availing of the scheme is only possible after obtaining a collective registration
5. The eligible must state “Composition Taxable Person” on their nameplates

How can one opt for a composition scheme?

To opt for the composition scheme, the applicant must file GST CMP-02 with the government of India. The way to file it is a simple one. One only needs to go to the GST registration portal and fill out the application form.

However, just registering in the scheme is not enough. One must also know how to raise a bill under this scheme.

Process for raising the bill under the Composition Scheme

For a composition dealer, raising a tax invoice is not an option. As they will be paying taxes from their own pockets, the only bill they are allowed to raise is the “Bill of supply”.

Conclusion

The GST Composition Scheme is a way to cut through much of the complexities of taxation and streamline it. If you want to get the benefit of this scheme, or want to know more about it, consult with Registrationwala.

Frequently Asked Questions (FAQs)

Q1. What is the GST Composition Scheme?

A. The GST Composition Scheme is a simplified tax scheme for small taxpayers with an annual turnover of up to ₹1.5 crore. It allows them to pay GST at a fixed rate and file fewer returns.

Q2. Who can opt for the GST Composition Scheme?

A. Any taxpayer with turnover less than ₹1.5 crore (₹75 lakh in some states) can opt for this scheme, except those restricted under the rules.

Q3. Who cannot opt for the scheme?

• Manufacturers of ice cream, tobacco, and pan masala

• Businesses making inter-state supplies

• Casual or non-resident taxpayers

• Businesses selling through e-commerce platforms

Q4. What are the conditions under the scheme?

• Cannot claim input tax credit (ITC)

• Must issue a “Bill of Supply” instead of a tax invoice

• Must pay normal tax under Reverse Charge Mechanism (RCM)

• Must display “Composition Taxable Person” on business signboards

Q5. How to apply for the GST Composition Scheme?

A. You can apply by filing Form GST CMP-02 on the GST portal.

Q6. What kind of bill does a composition dealer issue?

A. A composition dealer issues a “Bill of Supply” instead of a tax invoice.

Q7. What are the benefits of the scheme?

• Simple compliance

• Lower tax rates

• Less paperwork

• Easy to maintain records

Author: Dushyant Sharma

Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, telecom, and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.