The Composition Scheme lets small taxpayers pay GST at a flat lower rate (1-6%) without maintaining detailed records. Quarterly payment + annual return. No ITC, no inter-state supply. This guide covers eligibility, rates, returns, and when to opt in or out.
| Category | Rate | Turnover Limit | Note |
|---|---|---|---|
| Manufacturers | 1% (0.5% CGST + 0.5% SGST) | ₹1.5 crore | Includes all goods manufactured. Does not include goods taxed at 0% (exempt) in the threshold calculation. |
| Restaurants / Eating Joints | 5% (2.5% CGST + 2.5% SGST) | ₹1.5 crore | Only for restaurants not serving alcohol. Hotels with rooms above ₹7,500/night are excluded from composition. |
| Other Suppliers (Traders) | 1% (0.5% CGST + 0.5% SGST) | ₹1.5 crore | Includes traders dealing in goods only. Cannot deal in services (except restaurant services) under regular composition. |
| Service Providers (Section 10(2A)) | 6% (3% CGST + 3% SGST) | ₹50 lakh | Available for service providers and mixed suppliers (goods + services) since April 2019. Lower turnover limit applies. |
Aggregate turnover in preceding FY must not exceed ₹1.5 crore (₹75 lakh for special category states: Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Uttarakhand). For service providers: ₹50 lakh.
CANNOT make inter-state outward supplies. All supplies must be intra-state (within the same state). If you sell to customers in other states: not eligible for composition.
CANNOT supply through e-commerce operators (Amazon, Flipkart, Swiggy, etc.). If any part of your supply is through e-commerce: entire business is disqualified.
CANNOT supply goods that are NOT leviable to tax (exempt supplies are okay, but non-taxable — like alcohol, petroleum — disqualify).
Cannot manufacture ice cream, pan masala, tobacco, aerated drinks, or fly ash bricks/blocks under composition scheme.
Composition dealers CANNOT claim Input Tax Credit on any purchases. All GST paid on inputs is a cost. This is the biggest trade-off of the scheme.
Self-assessed tax payment statement. Declare outward supplies and pay tax. No invoice-level detail required.
Annual return summarizing all quarterly CMP-08 filings. Includes inward supplies attracting reverse charge, TDS/TCS credits. This replaced the earlier quarterly GSTR-4.
Was the annual return for composition dealers. Discontinued from FY 2019-20 onwards. Now GSTR-4 serves as annual return.
Ideal for: small businesses with turnover under ₹1.5 crore (goods) or ₹50 lakh (services), businesses selling only within their state (no inter-state supply), businesses not selling through e-commerce platforms, businesses with low input tax (since ITC is not available), businesses wanting simplified compliance (quarterly payment + annual return). NOT suitable if: you sell inter-state, use e-commerce, have significant input tax, or deal with exempt customers who need tax invoices.
No. A composition dealer CANNOT issue a tax invoice (invoice showing GST separately). They must issue a 'Bill of Supply' instead. The bill of supply must prominently display: 'Composition taxable person, not eligible to collect tax on supplies'. Since no GST is shown on the bill, the buyer CANNOT claim ITC on purchases from composition dealers. This is why B2B buyers often prefer regular dealers.
No. This is the biggest limitation. A composition dealer cannot claim ITC on any purchases — whether goods, services, or capital goods. All GST paid on inputs becomes a cost. Example: If you buy raw materials worth ₹1,00,000 + ₹18,000 GST, the entire ₹18,000 is a cost (not recoverable). However, the lower tax rate (1% vs 18%) often compensates for this loss, especially for businesses with low input costs.
File Form CMP-04 (intimation to withdraw from composition) on the GST portal before the start of the financial year (or within 7 days of crossing the threshold). File Form ITC-01 within 30 days of switching — this lets you claim ITC on stock, semi-finished goods, finished goods, and capital goods held on the date of switch. You'll then need to file monthly GSTR-1 and GSTR-3B like a regular dealer.
You must switch to regular scheme immediately upon crossing the threshold. File CMP-04 within 7 days of crossing. File Form ITC-01 within 30 days to claim ITC on existing stock. Start filing regular returns (GSTR-1, GSTR-3B) from the date of switch. Important: the threshold is checked on aggregate turnover (all GSTINs combined, including exempt supplies, but excluding inward supplies under reverse charge).
Automated CMP-08 quarterly filing, GSTR-4 annual return, and real-time turnover tracking to stay within limits.
Start Free Trial