Navigating GST (Goods and Services Tax) can be overwhelming for small business owners. If you’re one of them, the GST Composition Scheme could be your best friend. It offers a straightforward tax payment system, lower rates, and fewer compliance obligations. In this blog, we’ll break it down so you can decide if it’s right for you.
💡 What Exactly is the Composition Scheme?
The Composition Scheme, introduced under Section 10 of the CGST Act, 2017, is a voluntary and simplified GST scheme for small taxpayers. It allows you to pay GST at a fixed rate on your turnover instead of dealing with multiple tax rates and claiming Input Tax Credit (ITC).
Think of it as a flat-tax model with minimal paperwork.
📋 Who Can Opt for It?
You can choose this scheme if your total annual turnover is:
- Up to ₹1.5 crore in most Indian states
- Up to ₹75 lakhs in special category states
Special Category States Include:
Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, and Uttarakhand.
You must also meet these conditions:
- You supply only within your state (no interstate sales)
- You are not involved in e-commerce supplies
- You deal in taxable goods or services only
🚫 Who is Not Eligible?
Certain businesses are automatically excluded from the Composition Scheme:
- Suppliers making interstate supplies
- E-commerce operators or those supplying through them
- Casual taxable persons and non-resident taxpayers
- Manufacturers of ice cream, tobacco, or pan masala
❌ Can Ice Cream Parlours Opt for This Scheme?
No. Ice cream is a notified good under Section 10(2)(e), and its manufacturers are excluded from the Composition Scheme as per Notification No. 14/2019 – Central Tax (Rate).
🏢 Can You Use This Scheme for Rental Income?
It depends on the nature of the rental service:
- Commercial Property Rent: Taxable and can be covered under the scheme (if under Section 10(2A))
- Residential Rent: Generally exempt from GST
If you earn rental income from commercial properties, you may pay a flat 6% GST (3% CGST + 3% SGST) under the new scheme for service providers.
📊 What Are the Tax Rates?
Here’s a quick table summarizing GST rates under the scheme:
| Type of Business | GST Rate | Section Reference |
| Manufacturers (non-notified) | 1% | 10(1) |
| Traders (taxable supplies) | 1% | 10(1) |
| Restaurants (non-alcoholic) | 5% | 10(1) |
| Service Providers (under 10(2A)) | 6% | 10(2A) |
🏭 Industries That Benefit the Most
The Composition Scheme is ideal for:
- Local Kirana stores
- Small wholesalers
- Tailors and boutique owners
- Non-liquor restaurants
- Beauty salons and spas
- Freelancers offering local services
These businesses usually operate on smaller margins and don’t need to deal with the complexities of input credit.
🧾 Compliance Made Easy
No monthly headache. Here’s what you need to do:
- Quarterly payment using Form CMP-08
- Annual return through Form GSTR-4
- Mention “composition taxable person” on all invoices and shop signage
- Pay GST on reverse charge supplies (where applicable)
🔁 How to Join or Exit the Scheme?
- Opt-in: File Form CMP-02 before the start of the financial year
- Opt-out: File Form CMP-04 and Form ITC-01 (to claim input credit when moving to regular GST)
📝 Final Thoughts: Is It Right for You?
The Composition Scheme is designed for ease. If your operations are local, and your turnover is within limits, this scheme simplifies your tax journey—no confusing returns, no input credit tracking, just a simple tax model.
But remember, it comes with restrictions—no input credit, no interstate trade, and limited growth options.
📞 Still unsure if your business qualifies? Talk to a GST consultant for tailored advice and smart tax planning.
