# Composition Levy — Purpose & Overview

## Why the Composition Scheme exists

Objective	Benefit to small taxpayer
Simplification	No need to classify goods/services or track HSN/SAC-wise GST rates
Reduced compliance cost	File one quarterly payment (Form GST CMP-08) + annual return (GSTR-4)
Less paperwork	Issues Bill of Supply (not tax invoice); no tax charged to recipient

## Trade-offs

No Input Tax Credit (ITC) — can neither claim nor pass on ITC.
Recipient cannot claim ITC (because no tax is charged separately on Bill of Supply).
Tax is paid out of the supplier's own pocket as a percentage of turnover.

## Two limbs of the Composition Scheme

```

Composition Scheme u/s 10

│

├── Section 10(1) & 10(2) → Composition scheme for GOODS (and restaurant services)

│

└── Section 10(2A) → Composition scheme for SERVICES (other than restaurant)

```

## Filing Cycle

Quarterly: Pay tax via Form GST CMP-08 (statement-cum-challan).
Annually: File return in Form GST GSTR-4.

Worked example

### Example 1

Example: A small kirana store with turnover of ₹80 lakh per year opts for the composition scheme. Instead of charging GST at 5%/12%/18% on each item and tracking ITC, the dealer pays a flat 1% (0.5% CGST + 0.5% SGST) on turnover and issues Bills of Supply. Compliance is reduced to one quarterly CMP-08 + one annual GSTR-4.

⚠️ Common exam mistakes

Assuming a composition dealer can issue a tax invoice — they must issue Bill of Supply only.
Believing the recipient can claim ITC on purchases from composition dealer — they cannot.
Confusing the GSTR-4 (annual) with CMP-08 (quarterly payment statement).

Reference:

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Purpose & Overview of Composition Scheme

Worked example

⚠️ Common exam mistakes