The GST Composition Scheme is a simplified tax regime designed for small businesses that want to reduce their compliance burden and pay GST at a flat rate on turnover instead of calculating tax on every transaction. If your business qualifies, this scheme can significantly simplify your GST compliance. Here is a complete guide for 2025.
What is the Composition Scheme?
Under the Composition Scheme, eligible taxpayers pay GST at a fixed percentage of their turnover instead of the regular transaction-by-transaction GST. They file a simple quarterly return (Form CMP-08) and one annual return (GSTR-4), instead of monthly GSTR-1 and GSTR-3B. The scheme is governed by Section 10 of the CGST Act.
Eligibility — Who Can Opt In?
- Manufacturers and traders with annual aggregate turnover up to ₹1.5 crore (₹75 lakh for special category states — Kerala is at ₹1.5 crore)
- Restaurants (not serving alcohol) with turnover up to ₹1.5 crore
- Service providers with annual turnover up to ₹50 lakh can opt for the composition scheme for services under Section 10(2A)
Who Cannot Use the Composition Scheme?
- Taxpayers supplying goods not taxable under GST (e.g., petroleum products)
- Businesses making inter-state outward supplies
- E-commerce operators and those supplying through e-commerce operators
- Businesses supplying non-taxable goods
- Manufacturers of notified goods (ice cream, pan masala, tobacco products)
Composition Tax Rates
- Manufacturers: 1% of turnover (0.5% CGST + 0.5% SGST)
- Traders (Goods): 1% of turnover
- Restaurants (Not Serving Alcohol): 5% of turnover (2.5% CGST + 2.5% SGST)
- Service Providers (Section 10(2A)): 6% of turnover (3% CGST + 3% SGST)
Note: Composition dealers cannot charge GST to customers — the tax is borne out of their own pocket. This is a key restriction to consider if your customers are businesses that want to claim ITC.
Key Restrictions Under Composition Scheme
- Cannot collect GST from customers (no tax invoice — only bill of supply)
- Cannot claim Input Tax Credit on purchases
- Cannot supply interstate goods
- Must display "Composition Taxable Person, not eligible to collect tax on supplies" on all business premises and bills
How to Opt Into the Composition Scheme
File Form GST CMP-02 on the GST portal before the beginning of the financial year (i.e., before 1 April). New registrants can opt in at the time of registration. Once you opt in, you must remain in the scheme for the entire financial year. To opt out, file Form GST CMP-04.
Returns Under Composition Scheme
- Form CMP-08: Quarterly tax payment statement — filed by 18th of the month following each quarter
- GSTR-4: Annual return — filed by 30 April following the end of the financial year
Conclusion
The Composition Scheme is an excellent option for qualifying small businesses in Kerala that want to simplify compliance and reduce paperwork. SPOTON helps small businesses across Calicut and Kerala choose the right GST regime and handles all filings. Contact us for expert advice.
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