What is Composition Scheme?

How it works

Available to taxpayers with turnover up to Rs.1.5 crore (Rs.50 lakh for services), composition dealers pay a low flat rate, file quarterly CMP-08 and an annual GSTR-4, and cannot collect GST from customers or claim ITC.

Eligibility and rates

Available to taxpayers with aggregate turnover up to Rs.1.5 crore (Rs.75 lakh in special-category states): manufacturers and traders pay 1% of turnover (0.5% CGST + 0.5% SGST), restaurants (non-alcohol) 5%, and the services composition under Section 10(2A) allows service providers up to Rs.50 lakh to pay 6%. Excluded: inter-state outward suppliers, e-commerce sellers through TCS operators (goods — services sellers were enabled from 2023), ice-cream/pan masala/tobacco manufacturers, and casual/non-resident taxpayers.

Worked example

A kirana trader with Rs.90,00,000 turnover pays 1% = Rs.90,000 per year, files quarterly CMP-08 and annual GSTR-4 — versus the regular scheme's monthly returns and 18%/12%/5% output tax with ITC. The catch: no ITC on purchases and no tax collection from customers (composition dealers issue a bill of supply, not a tax invoice). For B2B-facing businesses, composition is usually wrong — customers lose their credit chain; for B2C retail with thin input tax, it is a compliance bargain.

Boundary discipline

The scheme dies the day turnover crosses the limit — transition to regular registration is immediate, not from the next quarter, with stock-based ITC available via ITC-01. Watch RCM (composition dealers still pay reverse-charge in cash, with no credit), and the 10% services allowance for goods-composition taxpayers (services up to 10% of turnover or Rs.5 lakh, whichever is higher, are permitted).

This content is for general guidance only and does not constitute professional advice. Tax law changes frequently — verify the current position and consult a qualified Chartered Accountant before acting. Last reviewed: June 2026.