GST Composition Scheme — Eligibility, Rates & Returns
The GST Composition Scheme lets small businesses pay GST at a low flat rate on turnover with minimal compliance — quarterly payment and one annual return. Here's who qualifies, the rates, and the trade-offs.
The Composition Scheme under GST is a simplified option for small taxpayers to pay tax at a fixed percentage of turnover instead of the regular GST rates, with far lighter compliance. It suits small traders, manufacturers, restaurants and small service providers who sell mainly to end consumers.
The trade-off: composition dealers cannot collect GST from customers, cannot claim input tax credit, and cannot make inter-state outward supplies.
On this page
Who can opt for the Composition Scheme
You can opt in if your aggregate turnover in the previous financial year did not exceed the threshold:
| Business type | Turnover limit |
|---|---|
| Goods (traders & manufacturers) | ₹1.5 crore (₹75 lakh in specified special-category states) |
| Services / mixed supplier (Sec 10(2A)) | ₹50 lakh |
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Composition tax rates
| Category | GST rate (of turnover) |
|---|---|
| Manufacturers & traders of goods | 1% (0.5% CGST + 0.5% SGST) |
| Restaurants (not serving alcohol) | 5% (2.5% + 2.5%) |
| Other eligible service providers (Sec 10(2A)) | 6% (3% + 3%) |
Who cannot opt in
- Businesses making inter-state outward supplies
- Suppliers through e-commerce operators that collect TCS
- Manufacturers of notified goods (ice cream, pan masala, tobacco, aerated water)
- Casual or non-resident taxable persons
- Suppliers of non-taxable goods/services
Key restrictions
- Cannot collect GST from customers (must issue a bill of supply, not a tax invoice)
- Cannot claim input tax credit on purchases
- Must pay tax under reverse charge at normal rates where applicable
- Must mention 'composition taxable person' on signboards and bills of supply
Returns & payments
- CMP-08 — quarterly statement-cum-challan to pay tax, by the 18th of the month after each quarter
- GSTR-4 — annual return, by 30 June after the financial year
- CMP-02 — form to opt into the scheme (before the financial year begins)
Composition vs Regular — which is better?
Choose composition if you sell mostly to consumers (B2C), have few input credits, and value low compliance. Choose the regular scheme if you sell B2B (customers want ITC), have significant input GST to claim, or make inter-state sales.
Frequently Asked Questions
What is the turnover limit for the GST Composition Scheme?
₹1.5 crore for goods (₹75 lakh in special-category states) and ₹50 lakh for service providers under Section 10(2A).
What are the composition scheme tax rates?
1% for traders and manufacturers, 5% for restaurants (no alcohol), and 6% for other eligible service providers, charged on turnover.
Can a composition dealer claim input tax credit?
No. Composition taxpayers cannot claim ITC and cannot collect GST from customers; they issue a bill of supply instead of a tax invoice.
Which returns does a composition dealer file?
A quarterly CMP-08 (payment) by the 18th of the month after the quarter, and an annual GSTR-4 by 30 June.
Can a composition dealer sell inter-state or on e-commerce?
No. Composition taxpayers cannot make inter-state outward supplies or sell through e-commerce operators that collect TCS.
How do I opt into the composition scheme?
File Form CMP-02 on the GST portal before the start of the financial year; new registrations can opt in at the time of registration.
Should you opt for the Composition Scheme?
TAXAJ checks your eligibility, opts you in on the GST portal, and files your CMP-08 and GSTR-4 — or advises when the regular scheme is better for your input-credit position.