How does the composition scheme actually save money?
It saves time more than tax. A composition dealer pays a small percentage of total turnover, 1% for traders and manufacturers, 5% for restaurants and 6% for services, and files one CMP-08 a quarter plus an annual GSTR-4. But the tax comes out of your own margin, because you cannot charge GST to the customer, and you get no input tax credit on anything you buy. A trader who buys goods at 18% GST and sells to consumers pays that 18% on purchases plus 1% on sales, with no set-off. Under regular GST the same trader collects 18% from the customer and claims the 18% paid on purchases, so the tax is largely a pass-through. Composition wins when your inputs carry little GST and your customers cannot use credit anyway.
Who is not allowed to use composition?
Anyone who supplies goods to another state, anyone selling through a marketplace outside their own state, and manufacturers of a few notified goods such as ice cream, pan masala and tobacco. Casual and non-resident taxable persons are excluded. Service providers can opt in only under the separate 6% scheme with a ₹50 lakh turnover cap. Turnover is counted across all businesses under the same PAN, so if you run two shops in one state both must be on composition. The moment aggregate turnover crosses ₹1.5 crore (₹50 lakh for services), you must exit with CMP-04 and start charging GST on every invoice from that day. Missing that switch means paying the full rate later out of pocket, with interest.
What do B2B customers expect from you?
A tax invoice they can claim credit on, which only a regular registration provides. A business buyer paying you ₹1 lakh plus 18% GST recovers that ₹18,000 as input tax credit, so your price is effectively ₹1 lakh. If you are on composition, you issue a bill of supply for ₹1 lakh with no GST line, and the buyer gets nothing back but also pays nothing extra; the problem is that you have swallowed the tax on your own purchases, so your price has to be higher to earn the same margin. Most companies, government buyers and marketplaces also require a regular GSTIN in their vendor forms. If more than a small share of your sales is to businesses, regular GST is the right choice.
How do the filing loads compare?
Regular GST means GSTR-1 by the 11th of the next month and GSTR-3B by the 20th, or, under the QRMP scheme for turnover up to ₹5 crore, quarterly returns with a monthly tax payment. Add GSTR-9 by 31 December each year, and e-invoicing once turnover crosses ₹5 crore. Composition means one CMP-08 by the 18th of the month after each quarter and one GSTR-4 by 30 June. Both regimes charge ₹50 per day for late returns (₹20 for nil returns) with caps, and 18% interest on tax paid late. If you use an accountant or a filing service, the regular scheme costs more per year simply because there are more returns and reconciliations to do.
