The GST composition scheme, in plain English.

What is the composition scheme?

The GST composition scheme is an optional, simplified way to pay GST for small businesses. Instead of the regular mechanism — charging GST on every sale, claiming ITC on every eligible purchase, and filing monthly returns — a composition dealer pays a small, flat percentage of turnover as tax, files quarterly instead of monthly, and skips invoice-level GST reporting almost entirely.

It suits small traders, manufacturers and service providers whose customers don't need a GST invoice to claim their own ITC — typically businesses selling to end consumers rather than other GST-registered businesses.

Eligibility & turnover limit

The turnover limit to opt into composition is ₹1.5 crore for suppliers of goods in most states, and ₹75 lakh for a few special-category states. A separate composition option exists for service providers, generally capped at ₹50 lakh turnover. These limits and the special-category state list have shifted before and can shift again, so treat these as a working guide — check the latest on the GST portal or with your CA before you opt in.

Composition tax rates by business type

The rate you pay depends on what kind of business you run, not on what you sell in any given month:

These are the standard notified rates at the time of writing — please verify current rates on the GST portal before filing, since composition rates are set by notification and can be revised.

Who cannot opt in

The composition scheme isn't available to every small business. You're excluded if any of the following apply:

• Businesses making inter-state outward supplies
• Suppliers selling through an e-commerce operator who collects TCS
• Manufacturers of certain notified goods (e.g. ice cream, pan masala, tobacco)
• Casual taxable persons and non-resident taxable persons
• Businesses supplying goods not leviable to GST
• A registered person also making non-eligible supplies from the same PAN

If your business needs to sell inter-state or through an online marketplace, the composition scheme won't work for you regardless of turnover — you'll need to register under the regular scheme. Our GST guide covers regular registration end to end.

Returns & compliance

A composition dealer's return cycle is deliberately light: CMP-08 is filed quarterly — a summary statement of turnover and tax paid — and GSTR-4 is filed annually, consolidating the year. There's no monthly GSTR-1/GSTR-3B filing and no invoice-wise reporting the way regular taxpayers file.

On the sales side, a composition dealer issues a bill of supply, not a tax invoice — because you cannot charge GST separately to your customer, and you cannot claim ITC on what you buy. Both restrictions are printed obligations: a bill of supply must clearly state "composition taxable person, not eligible to collect tax on supplies."

Pros & cons

Pros: a low, predictable flat tax rate; quarterly payment and annual return instead of monthly filing; no invoice-level GST reporting; simpler books to maintain.

Cons: no ITC on purchases, so GST paid to your suppliers becomes a real cost; you can't charge GST to customers, which matters if they're GST-registered businesses wanting to claim ITC from you; no inter-state sales or e-commerce marketplace selling; and once you cross the turnover limit, you must switch to the regular scheme.

For many small B2C businesses — a local trader, a small restaurant, a neighbourhood service provider — the simplicity wins. For a B2B supplier whose customers expect a GST invoice, it usually doesn't.

Frequently asked questions