Learn about What is Penalty on Composition Scheme in GST. The GST Composition Scheme offers small taxpayers reduced compliance and a lower tax rate. However, many businesses are unaware that non-compliance under the Composition Scheme can lead to penalties. These penalties may arise from late filing, ineligible registration, or failure to pay taxes on time.
In this article, we explain the penalty on Composition Scheme in GST, along with real examples, due dates, and tips to avoid them.
✅ When Does Penalty Apply Under GST Composition Scheme?
A registered composition dealer may face penalties in the following cases:
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Late filing of returns (CMP-08 or GSTR-4).
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Delay in payment of tax liability.
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Incorrect claim of eligibility for Composition Scheme.
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Exceeding turnover limit but not shifting to regular GST.
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Misuse of scheme for fraudulent purposes.
📌 Types of Penalties under Composition Scheme
Here is a quick summary of penalties under GST Composition Scheme:
| Type of Non-Compliance | Penalty / Consequence |
|---|---|
| Late filing of CMP-08 or GSTR-4 | ₹200 per day (₹100 CGST + ₹100 SGST), max ₹5,000 |
| Late payment of tax | 18% per annum interest on unpaid tax |
| Ineligible taxpayer opting for scheme | Regular tax liability + penalty under Sec. 73 or 74 |
| Suppression of turnover / misreporting | Tax evasion penalty (100% of tax evaded) |
🧾 Example of Penalty Calculation
Suppose a composition dealer’s CMP-08 due date is 18th July, but he files it on 28th July.
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Delay = 10 days
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Penalty = ₹200 × 10 = ₹2,000
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If tax of ₹50,000 was unpaid, additional 18% annual interest applies until payment date.
This shows how small delays can lead to significant costs.
⚠️ Ineligibility and Penalty Risks
Businesses sometimes wrongly opt for the Composition Scheme. For example:
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A service provider (other than restaurants) choosing composition (not allowed).
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A trader exceeding ₹1.5 crore turnover but continuing as a composition dealer.
👉 In such cases, the dealer must pay regular GST with input tax reversal plus penalty. This can result in double financial loss.
✅ How to Avoid Penalties
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File CMP-08 quarterly before the 18th.
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Submit GSTR-4 annual return before 30th April.
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Pay tax promptly to avoid interest.
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Regularly check turnover to ensure scheme eligibility.
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Take professional advice for compliance.
Conclusion
The penalty on Composition Scheme in GST applies for late filing, delayed tax payment, or wrongful eligibility. While the scheme reduces compliance, businesses must remain vigilant to avoid heavy fines.
👉 Need expert help? Contact Us to file your returns on time and stay penalty-free.