GST Composition Scheme (GSTR-4)

GST filing under Composition Scheme with simplified quarterly returns.

The composition scheme lets a small business pay GST at a flat rate on turnover — 1% for traders and manufacturers, 5% for restaurants, 6% for eligible service providers — instead of the normal rate, in exchange for giving up input credit entirely and being unable to charge GST to customers. It is genuinely simpler and genuinely cheaper for a business selling to consumers, and it is the wrong choice at any turnover for a business selling to registered customers, who get no credit on your invoice.

Who this is for

Simplified tax rates
No ITC benefit
Quarterly filing
Lower compliance

The process

What we actually do

1
We work out whether it actually saves you money
The comparison is the flat rate on turnover against the normal rate less input credit. For a retailer with thin input credit the flat rate usually wins; for anyone with substantial purchases it often does not, because the credit forgone exceeds the rate saved.
2
We check the eligibility conditions properly
No interstate outward supply, no supply through an e-commerce operator, no manufacture of notified goods. Any one of these ends eligibility, and continuing in the scheme afterwards means the tax is recomputed at normal rates for the whole period.
3
We set the invoicing up correctly
A composition dealer issues a bill of supply, not a tax invoice, and it must carry the words indicating composition status. Issuing a tax invoice implies tax was collected, which a composition dealer may not do.
4
We file CMP-08 quarterly and GSTR-4 annually
CMP-08 is the quarterly statement and payment; GSTR-4 is the annual return. Both are short, and both carry a late fee that runs per day regardless of how small the business is.
5
We watch the turnover and manage the exit
Crossing ₹1.5 crore ends eligibility from that day, not from the year end. The transition to the regular scheme changes invoicing, filing and pricing at once, so it is better planned than discovered.

Who this is for

Retailers and traders selling mostly to consumers, with turnover up to ₹1.5 crore
Restaurants, which pay 5% on turnover under the scheme
Small service providers with turnover up to ₹50 lakh under the section 10(2A) option
Businesses currently in the scheme who need CMP-08 and GSTR-4 filed
Anyone weighing composition against the regular scheme and needing the arithmetic rather than the rule

How long it takes

Opting in is done at registration or at the start of a financial year through Form CMP-02. The ongoing cycle is CMP-08 by the 18th of the month following each quarter and GSTR-4 by 30 June following the financial year.

If you do nothing

Staying on the regular scheme costs more filings and more bookkeeping, which for a small retailer is a real ongoing expense. The worse outcome is being in the scheme while ineligible — an interstate sale or a marketplace listing ends eligibility immediately, and the tax is then recomputed at full rates on the entire turnover of the period with no input credit to set against it.

The law, in figures

Dates, thresholds and sections

Every figure below carries the provision it comes from, so it can be checked.
What	Figure	Source
Turnover limit, goods	₹1,50,00,000	Section 10(1), CGST Act 2017
Turnover limit, services	₹50,00,000	Section 10(2A), CGST Act 2017
Rate, traders and manufacturers	1% of turnover	Rule 7, CGST Rules 2017
Rate, restaurants	5% of turnover	Rule 7, CGST Rules 2017
Quarterly statement	Form CMP-08 by the 18th of the month following the quarter	Rule 62(1), CGST Rules 2017
Annual return	Form GSTR-4 by 30 June following the financial year	Rule 62(1)(ii), CGST Rules 2017

What usually goes wrong

Choosing composition while selling to registered businesses, who then get no credit on your invoices
Issuing a tax invoice instead of a bill of supply, which implies tax was collected
Making an interstate outward supply and remaining in the scheme
Attempting to claim input credit, of which there is none under the scheme on anything
Crossing the turnover limit mid-year and continuing to pay at the composition rate

What non-compliance costs

Tax recomputed at normal rates for the whole ineligible period, with interest at 18%
Penalty under section 122 for a person wrongly availing the scheme
Late fee on CMP-08 and GSTR-4, running per day
Customers cannot claim credit, which is a commercial cost rather than a statutory one

These are statutory amounts, not our fees. What we charge depends on your situation and is quoted before any work starts.

Not to be confused with

These come up in the same conversation and are routinely treated as the same thing. They are not.

QRMP

QRMP is quarterly filing under the normal scheme, with input credit intact and GST charged to customers as usual. Composition changes the tax itself.

Exempt supply

A composition dealer pays tax, just at a flat rate out of margin rather than collecting it. An exempt supply carries no tax at all and is a different concept entirely.

Terms you will come across

Composition Scheme: The composition scheme lets small businesses pay GST at a flat percentage of turnover instead of the normal rate, in exchange for giving up input tax credit.

Related services