The composition scheme was introduced in order to simplify compliance with GST laws for small taxpayers, with an annual turnover of less than ₹1.5 crores (earlier it was ₹1 crore). The GST composition scheme rules outline procedural compliance with respect to the intimation for the composition scheme, the date of levy, conditions, restrictions and validity on the levy, and tax rate.
The GST Composition Scheme is designed for small taxpayers who want to pay GST at a fixed rate and avoid the complexities of monthly returns. Businesses eligible to opt include:
Eligibility is limited to turnover up to ₹1.5 crore (₹75 lakh in select states). The threshold for service providers is ₹50 lakh. BUSY Software simplifies scheme selection by tracking turnover, auto-applying correct tax rates, and ensuring eligibility alerts.
The following categories are not eligible for the Composition Scheme:
If ineligible businesses opt into the scheme, they may face penalties and tax reassessment. BUSY helps businesses assess eligibility with built-in compliance checks and GST classification tools.
For existing registrants under the pre-GST era
Individuals who possess provisional registration under VAT Act, Service Tax, Central Excise laws, etc. and have chosen composition levy must file an electronic intimation in GST CMP-01 form with a signature before or within 30 days from the appointed date. If they fail to file the intimation within the timeframe, they won’t be able to collect taxes.
Additionally, a bill of supply (GST CMP-03 form) must also be filed within 60 days of filing the intimation. The following details must be provided in this form:
Also Know – Differences Between Regular and Composite Schemes
People who are new registrants under GST
Individuals applying for a new registration under the scheme must file an intimation in FORM GST REG-01.
For registered individuals switching to the Composition Scheme
Individuals who are already registered under GST but opt to pay taxes under the Composition Scheme must follow these steps:
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The option to pay taxes under the Composition Scheme will become effective as follows:
To stay compliant under the Composition Scheme, businesses must follow these conditions:
Violating any condition can result in removal from the scheme. BUSY Software enforces these restrictions in your billing and return processes to prevent compliance errors.
Under the GST Composition Scheme, the tax is paid at fixed rates based on the type of business:
Business Type | GST Rate |
---|---|
Manufacturers | 1% (0.5% CGST + 0.5% SGST) |
Traders / Retailers | 1% (0.5% + 0.5%) on turnover |
Restaurants (non-alcoholic) | 5% (2.5% + 2.5%) |
Service Providers (new scheme) | 6% (3% + 3%) up to ₹50 lakh turnover |
These rates are applied to the total turnover, not profit margins. BUSY applies these rates automatically, ensuring accurate calculation and tax payment.
Composition dealers cannot issue tax invoices. Instead, they must issue a Bill of Supply without showing GST separately. Each invoice must include:
BUSY Software provides pre-set templates for Bills of Supply that comply with composition scheme rules and formats, making billing simple and audit-ready.
Composition dealers enjoy reduced compliance burden. They must:
BUSY Software tracks due dates, calculates tax liability, and prepares both GSTR-4 and CMP-08 filings—helping you stay compliant without manual errors or missed deadlines.
The GST Composition Scheme offers several benefits:
BUSY Software is specially designed to support small businesses under the composition scheme. It offers user-friendly dashboards, automated billing, and tax calculation.
Despite its simplicity, the Composition Scheme has limitations:
Businesses outgrowing their local operations may find the scheme restrictive. With BUSY, you can monitor your turnover and receive alerts when nearing the threshold, so you can smoothly transition to the regular GST scheme if needed.
The validity of the composition levy depends on the following:
Type of business | CGST | SGST | Total |
---|---|---|---|
Manufacturers and Traders | 0.5% | 0.5% | 1% |
Restaurant not Serving alcohol | 2.5% | 2.5% | 5% |
Other service provider | 3.0% | 3.0% | 6% |
Following the due date for submitting such forms, the GST Composition Scheme Rules require the submission of various forms intended for various purposes.
Form Required | Purpose | Due Date |
---|---|---|
Form GST CMP-01 | To enrol in the scheme as a holder of a provisional GST registration (from VAT regime) | Before the scheduled date or within 30 days after that date |
Form GST CMP-02 | intimation of intent to participate in the scheme for regular taxpayers who are GST registered | Before the start of the financial year |
Form GST CMP-03 | Information about the stock and incoming shipments from both registered and unregistered sources | 90 days after the option was exercised |
Form GST CMP-04 | Notification of withdrawing the scheme | 7 days after the event had occurred |
Form GST CMP-05 | A proper official has given a show cause notice for a rule or act violation. | Regarding any infraction |
Form GST CMP-06 | Answering the show-cause notice | Within 15 days |
Form GST CMP-07 | Issue of Order | Within 15 days |
Form GST REG-01 | enrollment in the composition scheme | Before the designated date |
Form GST ITC-01 | Details on stock inputs, semi-finished goods, and finished goods | Option to withdraw after 30 days |
Form GST ITC-03 | Intimation of ITC available | within 60 days of the financial year’s beginning |
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The composition scheme is only for small taxpayers whose annual turnover is less than ₹1.5 crores. However, the scheme does not apply automatically to such taxpayers. Instead, they must voluntarily opt for this scheme. Even though the aim of the scheme is to simplify compliance for such businesses, the GST composition scheme rules are nevertheless very strict and clear in terms of what is and what is not allowed.
Any taxpayer who opts for the composition scheme is assumed to have opted for the scheme for all their business locations that have the same registered PAN. As a result, taxpayers cannot select only one business location to register under the scheme.Make GST compliance easy for your business with BUSY GST Software.