Complete guide to the Composition Scheme under Section 10 of CGST Act — eligibility, rates (1%/5%/6%), restrictions, filing requirements, and when to opt in or stay with regular registration.
| Feature | Composition | Regular |
|---|---|---|
| Turnover Limit | ₹1.5 Cr | No limit |
| Tax Rate | 1-6% (on turnover) | 5-28% (on value) |
| Input Tax Credit | Not available | Fully available |
| Invoice Type | Bill of Supply | Tax Invoice |
| Inter-State Supply | Not allowed (outward) | Allowed |
| E-Commerce Sales | Not allowed | Allowed |
| Return Filing | Quarterly + Annual | Monthly + Annual |
| Collect GST from Buyer | Cannot collect | Must collect |
Eligibility under Section 10 of CGST Act: (1) Aggregate turnover ≤ ₹1.5 Crore in preceding FY (₹75 Lakh for NE/hill states: Arunachal, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh, Uttarakhand); (2) Must be dealing in goods OR providing restaurant/outdoor catering services; (3) NOT eligible: Ice cream manufacturers, pan masala/tobacco dealers, casual taxable persons, non-resident taxable persons, inter-state suppliers, e-commerce operators, persons making exempt supply of alcohol. Post-2019 amendment: Pure service providers with turnover ≤ ₹50 Lakh can also opt for composition (at 6% rate).
Rates vary by business type: (1) Manufacturers & traders: 1% of turnover (0.5% CGST + 0.5% SGST); (2) Restaurants/outdoor catering: 5% of turnover (2.5% CGST + 2.5% SGST); (3) Service providers (Section 10(2A)): 6% of turnover (3% CGST + 3% SGST) — added via 32nd Council Meeting; Important: Tax is calculated on TOTAL turnover (not just taxable turnover). This means exempt supplies are included in the base. No separate IGST applies — all supplies treated as intra-state regardless of buyer location.
No. This is the biggest trade-off of the composition scheme. (1) Cannot claim ITC on any purchase (goods, services, capital goods); (2) Cannot pass on credit to buyers (buyers of composition dealer cannot claim ITC); (3) On exit from scheme: Can claim ITC on stock held as on date of transition to regular (file ITC-01); (4) On entry to scheme: Must reverse ITC on stock held as on transition date (file ITC-03); (5) Practical impact: Best for businesses with low input costs (services, trading) or where customers are end-consumers (don't need ITC). Bad for businesses with heavy capital investment or B2B customers who need tax invoices.
Simplified filing schedule: (1) CMP-08: Quarterly self-assessed tax statement — due by 18th of month following quarter (e.g., Q1 Apr-Jun due by 18th July). Contains turnover + tax calculation only; (2) GSTR-4: Annual return — due by 30th April of following FY. Contains full year summary, tax paid, amendments; (3) No GSTR-1 (outward supply details) required; (4) No GSTR-3B (monthly summary) required; (5) Total: 5 filings per year (4 quarterly CMP-08 + 1 annual GSTR-4) vs 25+ filings for regular dealers (12 GSTR-1 + 12 GSTR-3B + 1 GSTR-9).
Avoid composition scheme if: (1) Your customers are GST-registered businesses who need tax invoices to claim ITC — they'll avoid buying from you; (2) You have significant inter-state sales (not allowed); (3) You sell on Amazon/Flipkart (e-commerce supply not permitted); (4) You have large capital expenditure (can't claim ITC on machinery, office, vehicles); (5) Your input tax cost exceeds the composition benefit (e.g., if you buy goods at 18% and sell at 1% composition — you lose the 18% ITC); (6) Your turnover is growing fast and will cross ₹1.5 Cr — switching mid-year is disruptive; (7) You export goods (exports attract 0% GST with ITC refund — much more beneficial).
Whether composition or regular — our platform handles CMP-08, GSTR-4, and annual returns with auto-calculation.
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