Composition Scheme under GST – Simple Tax for Small Businesses (Updated 2025)

What is the Composition Scheme?

The Composition Scheme under GST is a simple way for small businesses to pay tax at a fixed rate without too much paperwork. It helps small traders, shopkeepers, and local service providers to easily follow GST rules.

Best for:

Small shopkeepers and traders
Local manufacturers
Restaurants and food joints
Freelancers and service providers

When Did It Start?

Launched on: 1st July 2017
Under Section: 10 of CGST Act, 2017
First Notification: 08/2017 – CT (Rate)

Composition Tax Rates under Section 10(1)

(a) Manufacturers – 1% of Turnover

Rate: 0.5% CGST + 0.5% SGST
Example: A furniture manufacturer with ₹60 lakh turnover will pay ₹60,000 GST.

(b) Restaurants (Cooked Food Suppliers) – 5% of Turnover

Rate: 2.5% CGST + 2.5% SGST
Example: A restaurant with ₹25 lakh turnover pays ₹1,25,000 GST.

(c) Traders / Other Suppliers – 1% on Taxable Turnover

Rate: 0.5% CGST + 0.5% SGST
Example: A garments shop with ₹40 lakh turnover pays ₹40,000 GST.

Legal Language (Simplified)

“Half percent of the turnover in State or Union Territory in case of other suppliers, subject to such conditions and restrictions as may be prescribed.”
– Section 10(1)(c), CGST Act

This means if you’re a trader or supplier (not manufacturer), you pay 0.5% CGST + 0.5% SGST on your taxable turnover within the state.

Forms Required in Composition Scheme

Form	Purpose	When to File
CMP-02	Opt for composition scheme	Once before financial year starts
CMP-08	Pay your GST quarterly	Every quarter
GSTR-4	File annual return	Once a year (by 30 April)

How to Apply for Composition Scheme?

You can apply for the GST Composition Scheme online in a few easy steps:

Step-by-Step:

Visit the official GST portal
Log in with your GSTIN and password
Go to Services > Registration > Application to Opt for Composition Levy
Fill Form CMP-02 before 31st March of the financial year
You will receive a confirmation on the portal

GST Notifications (Updated Till 2025)

Notification No.	Date	Description
08/2017 – CT (Rate)	27-Jun-2017	Tax rates for composition taxpayers
02/2019 – CT (Rate)	07-Mar-2019	6% rate for service providers (Sec 10(2A))
50/2023 – CT	24-Nov-2023	Biometric for new applicants
04/2024 – CT	10-Jan-2024	Aadhaar auth & invoice rules
Circular 206/2023	17-Oct-2023	Clarification on GSTR-4 filing

Conditions to Use Composition Scheme

You must follow these rules:

Turnover must be below ₹1.5 crore (₹75 lakh for North East States/hilly states)

Category	States Covered	Turnover Limit	Eligible for Composition Scheme?
Other States (General)	Maharashtra, Gujarat, Uttar Pradesh, Rajasthan, Delhi, Tamil Nadu, Karnataka, etc.	₹1.5 Crore	Yes, if turnover ≤ ₹1.5 Cr
North Eastern & Hill States	Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh, Uttarakhand	₹75 Lakh	Yes, if turnover ≤ ₹75 Lakh

Do only intra-state sales
No e-commerce (like Amazon or Flipkart)
No GST collection from customers
Cannot manufacture restricted goods
Use Bill of Supply, not Tax Invoice
Must display: “Composition Taxable Person”
Print on bills: “Not eligible to collect tax on supplies”

Who Should Choose the Composition Scheme?

Choose this scheme if:

You want less compliance
You are a small trader, manufacturer, or service provider
You don’t sell out of your state
You want to avoid monthly filings

Advice:

The Composition Scheme under GST is perfect for small businesses in India. You get:

Fixed low tax
Simple forms
No monthly return headache
Peace of mind

If your business is local and turnover is within limit, choose this scheme

Need Help Filing GST Composition?

We at TaxGiveIndia.com help small businesses with:

GST Registration & Return Filing
Choosing the right tax scheme
Filing CMP-08 & GSTR-4 on time
Saving tax & avoiding penalties