Composition Scheme: A Simpler Way to Pay GST for Small Businesses

The Composition Scheme trades away Input Tax Credit and a few freedoms in exchange for a flat, low rate on turnover and a fraction of the usual paperwork. For the right kind of small business, mostly retail and services sold to end consumers, that trade is a clear win.

GST Compliance

What Is GST? A Complete Guide

GST Registration

CGST, SGST and IGST

Composition Scheme

Composition eligibility and rates can be fact-specific. This article is for general information and does not constitute tax advice.

What It Is, and Eligibility

Under Section 10 of the CGST Act, eligible small taxpayers pay GST as a fixed percentage of turnover instead of regular slab rates, file one quarterly payment and one annual return instead of monthly returns, and skip invoice-level ITC tracking entirely — in exchange for giving up ITC and the ability to show GST separately on invoices (they issue a Bill of Supply, not a Tax Invoice). Goods suppliers qualify up to ₹1.5 crore turnover (₹75 lakh special category); services and mixed suppliers up to ₹50 lakh under Section 10(2A).

Rates

Business type	Rate	Split
Manufacturers and traders (goods)	1%	0.5% CGST + 0.5% SGST
Restaurants not serving alcohol	5%	2.5% CGST + 2.5% SGST
Other eligible service providers	6%	3% CGST + 3% SGST

The rate applies to total turnover in the state, taxable and exempt alike, and is paid out of pocket rather than collected from customers.

Who Cannot Opt In

Manufacturers of notified goods (ice cream, pan masala, tobacco), anyone making inter-state outward supplies, anyone supplying through an e-commerce operator required to collect TCS (effectively every major marketplace), casual and non-resident taxable persons, and suppliers of non-taxable goods or services.

Compliance, Opting In and Out

Composition dealers pay and self-assess through CMP-08, filed quarterly by the 18th of the month after the quarter, and file one annual return, GSTR-4, now due 30 June of the following financial year. No monthly GSTR-1 or GSTR-3B is needed. “Composition taxable person” must be displayed at the place of business and on every Bill of Supply.

An existing regular taxpayer opts in via CMP-02 before the financial year begins; a new registrant can opt in at registration. Voluntary exit is via CMP-04 at any time; if turnover crosses the threshold mid-year, the scheme stops applying from that date and CMP-04 must be filed within 7 days. ITC on stock and capital goods can then be claimed via Form ITC-01.

FAQs: Composition Scheme

Is the composition scheme a good fit for a B2B business?

Usually not. Composition dealers cannot pass on Input Tax Credit, so business buyers who need that credit tend to avoid purchasing from them. The scheme suits businesses selling mainly to end consumers.

Can a composition dealer sell through e-commerce platforms like Amazon or Flipkart?

No. Supplying through an e-commerce operator required to collect tax at source is a specific exclusion, and this covers essentially every major marketplace.

Do I need to reverse previously claimed ITC when switching into the scheme?

Yes. On the day before opting in, ITC already claimed on inputs in stock, semi-finished/finished goods, and a proportionate amount on capital goods must be reversed, reported through Form ITC-03.

What happens if I accidentally cross the turnover limit mid-year?

The scheme stops applying from the date the limit is crossed. Form CMP-04 must be filed within 7 days, and regular GST applies on supplies made after that date.

Does the composition scheme apply per GSTIN or per PAN?

Per PAN. If eligible, composition has to be opted for uniformly across every registration held under the same PAN.

Is there a minimum turnover to join, or can a brand-new business opt in immediately?

No minimum. A brand-new registrant can opt for composition at the time of registration, before generating any turnover.

Last updated on 5 August 2026