Composition Scheme in GST: Is It Still Relevant in 2025

Composition Scheme in GST: Is It Still Relevant in 2025

The Goods and Services Tax (GST) Composition Scheme, introduced under Section 10 of the CGST Act, 2017, was designed to simplify tax compliance for small businesses by allowing them to pay GST at a fixed rate based on their turnover. As of 2025, the scheme continues to offer benefits, but its relevance depends on various factors, including business type, turnover, and operational scope.

Current Eligibility Criteria (2025)

The eligibility thresholds for the Composition Scheme as of 2025 are:

• Manufacturers and Traders of Goods: Annual turnover up to ₹1.5 crore.
• Special Category States: ₹75 lakh turnover limit for states like Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, and Uttarakhand.
• Service Providers: Annual turnover up to ₹50 lakh.

💼 Who Can Opt for the Composition Scheme?

Businesses that meet the following criteria can opt for the Composition Scheme:

• Operate within a single state (intra-state supply).
• Do not engage in inter-state outward supplies.
• Are not supplying goods through e-commerce operators required to collect tax at source.
• Are not manufacturers of notified goods like ice cream, pan masala, or tobacco.
• Are not casual taxable persons or non-resident taxable persons.
• Do not engage in the supply of non-taxable goods or services.

📊 Tax Rates Under the Composition Scheme

The tax rates applicable under the Composition Scheme are:

• Manufacturers and Traders: 1% of turnover (0.5% CGST + 0.5% SGST).
• Restaurants (not serving alcohol): 5% of turnover (2.5% CGST + 2.5% SGST).
• Other Service Providers: 6% of turnover (3% CGST + 3% SGST).

📋 Compliance Requirements

Under the Composition Scheme, compliance is simplified:

• Quarterly Payment: Taxpayers need to pay tax quarterly using Form CMP-08.
• Annual Return: An annual return must be filed using Form GSTR-4.
• No Input Tax Credit (ITC): Taxpayers cannot claim ITC on purchases.
•  Bill of Supply: Instead of a tax invoice, a bill of supply must be issued, and tax cannot be collected from customers.

❌ Limitations of the Composition Scheme

While the Composition Scheme offers simplicity, it has certain limitations:

• No Inter-State Sales: Businesses cannot make inter-state outward supplies.
• No E-Commerce Sales: Suppliers cannot sell goods through e-commerce platforms that collect tax at source.
• No ITC: Ineligibility to claim input tax credit may increase the cost of inputs.
• Tax Cannot Be Collected from Customers: Taxpayers cannot issue tax invoices or collect tax from customers, which may affect pricing strategies.

🔄 Transitioning In and Out of the Scheme

• Opting In: Eligible businesses can opt for the Composition Scheme by filing Form CMP-02 before the commencement of the financial year.
• Opting Out: If a business becomes ineligible (e.g., turnover exceeds the threshold), it must file Form CMP-04 to withdraw from the scheme and switch to the regular GST regime.

🧾 Is the Composition Scheme Still Relevant in 2025?

The Composition Scheme remains relevant for small businesses that:

Operate within a single state.

• Have turnover within the specified limits.
• Do not require input tax credit.
• Prefer simplified compliance and reduced tax liability. However, businesses planning to expand beyond state borders, engage in e-commerce, or those requiring ITC may find the regular GST regime more suitable.

📌 Conclusion

The GST Composition Scheme in 2025 continues to offer a simplified tax compliance route for eligible small businesses. While it provides benefits like lower tax rates and reduced compliance burden, businesses must carefully assess their operations, growth plans, and customer base to determine if the scheme aligns with their needs.