Chartered Accountant · ICAI M.No. 153926 · FRN 136869W
How it works
You pay a small flat percentage of turnover and file quarterly CMP-08 with an annual GSTR-4 — much less paperwork.
The trade-offs
No input tax credit, you can’t collect GST from customers (it comes out of your margin), and you can’t supply inter-state. Confirm current rates.
Who it suits, and the conditions to watch
Composition suits a small business selling mainly to end consumers, where customers don’t need input credit and simplicity matters more than the credit chain — a local retailer, a small restaurant, a neighbourhood manufacturer. Because you pay a flat 1%, 5% or 6% of turnover and can’t pass GST to customers, the tax comes out of your margin, so it works when your own input GST is modest. The conditions are strict: you can’t make inter-state outward supplies, can’t sell through an e-commerce operator that collects TCS, can’t supply non-taxable goods or notified items (like ice cream, pan masala or tobacco for manufacturers), and must show ‘composition taxable person’ on signboards and bills of supply (not tax invoices). You file a quarterly CMP-08 challan and an annual GSTR-4. If your turnover crosses the limit mid-year, you exit composition and switch to regular registration from that point, with the input-credit and filing changes that brings. A common misstep is starting to sell inter-state or onboarding to a marketplace while on composition, which breaches the conditions. Confirm the current rates and the list of ineligible goods before opting, and re-check eligibility whenever your sales channels change.