If you run a small trading, manufacturing or restaurant business and find monthly GST returns and input tax credit reconciliation more trouble than they're worth, the composition scheme is built for you. You pay a small flat percentage of your turnover instead of the regular GST rate, and file only once a quarter (plus one annual return) instead of every month. The trade-off: no input tax credit, and some real restrictions on how you can sell. Here's exactly who qualifies, what it costs, and where it falls short.
Quick Summary
- Turnover limit: ₹1.5 crore (₹75 lakh in special category states); ₹50 lakh under the separate services-only scheme
- Tax rate: 1% goods, 5% restaurants, 6% services — charged on turnover, not passed on to customers separately
- Returns: Quarterly CMP-08 (by 18th of next month) + annual GSTR-4 (by 30 June)
- Biggest limitation: No input tax credit, no inter-state sales, no selling via Amazon/Flipkart-style marketplaces
Who Is Eligible for the GST Composition Scheme?
Eligibility is based on your aggregate turnover in the preceding financial year — this is your PAN-level turnover across all GST registrations, not just one GSTIN.
| Category | Turnover Limit |
|---|---|
| Manufacturers, traders, restaurants (most states) | Up to ₹1.5 crore |
| Special category states (NE states, Himachal Pradesh) | Up to ₹75 lakh |
| Service providers (separate scheme under Section 10(2A)) | Up to ₹50 lakh |
A goods trader or manufacturer on the regular composition scheme can also supply some services alongside their main business, up to 10% of turnover or ₹5 lakh (whichever is higher), without losing eligibility. A dedicated service business (consultants, agencies, repair shops) instead uses the separate composition scheme for services, with its own ₹50 lakh limit and 6% rate.
Tax Rates Under Composition Scheme
| Business Type | Rate |
|---|---|
| Manufacturers (except notified goods) | 1% (0.5% CGST + 0.5% SGST) |
| Traders (resellers) | 1% (0.5% CGST + 0.5% SGST) |
| Restaurants (not serving alcohol) | 5% (2.5% CGST + 2.5% SGST) |
| Service providers (separate scheme) | 6% (3% CGST + 3% SGST) |
This rate applies to your total turnover for the period, regardless of how much profit you actually made — and unlike regular GST, you cannot show this tax separately on your bill or collect it extra from the customer. A composition dealer issues a bill of supply, not a tax invoice.
The Trade-Off Most People Miss: No Input Tax Credit
A composition dealer cannot claim input tax credit on anything — not on stock purchased, raw materials, rent, or business expenses. For a business with high purchase costs and thin margins (say, a trader buying and reselling GST-heavy goods), this can sometimes cost more than simply paying regular GST and claiming ITC. It's worth running the actual numbers before opting in, not just assuming a 1% rate is automatically cheaper.
Who Cannot Opt for the Composition Scheme
- Manufacturers of ice cream, pan masala, or tobacco products
- Casual taxable persons and non-resident taxable persons
- Suppliers of goods not leviable to GST
- Anyone making inter-state outward supplies of goods
- Anyone supplying through an e-commerce operator required to collect TCS under Section 52 (Amazon, Flipkart, Meesho and similar marketplaces)
And once you're in, a few more restrictions apply: you can't issue a tax invoice or charge GST separately, you can't make inter-state sales, and reverse charge still applies when you buy from an unregistered supplier.
Returns and Deadlines Under Composition Scheme
| Return | Frequency | Due Date |
|---|---|---|
| CMP-08 | Quarterly (tax payment) | 18th of month after quarter end |
| GSTR-4 | Annual return | 30 June, following the financial year |
This is a fraction of the compliance load of the regular scheme, where GSTR-1 and GSTR-3B are filed every month. If your priority is keeping accounting simple rather than maximising ITC, that difference alone can be worth it.
How to Opt In (or Out)
A new registration can opt for composition at the time of applying for GST registration itself. An existing regular taxpayer who wants to switch files Form CMP-02 on the GST portal, and it applies from the start of the following financial year — the general deadline is 31 March for opting in from 1 April. If your turnover crosses the limit during the year, or you take up an activity that disqualifies you, you must exit the scheme immediately and move to regular GST from that point, not wait for year-end.
Is Composition Scheme Right for Your Business?
It tends to work well for small, local retailers, small manufacturers and neighbourhood restaurants with modest turnover, low purchase-side GST (so ITC loss doesn't sting much), and no need to sell inter-state or online. It tends to work poorly for businesses with high input costs, anyone planning to sell on marketplaces, and anyone whose B2B customers specifically want a GST tax invoice to claim their own ITC — composition dealers can't offer that.
Help Choosing or Switching Schemes
Rajput Lalit & Associates advises businesses in Ambala and across India on whether composition or regular GST fits their actual numbers, and handles the CMP-02 opt-in, CMP-08 quarterly filing and GSTR-4 annual return for composition dealers. Book a free consultation or see our GST Registration service.
Frequently Asked Questions
What is the turnover limit for GST composition scheme in 2026?
₹1.5 crore aggregate turnover in the preceding financial year for most states. For special category states (Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Uttarakhand), the limit is ₹75 lakh. A separate composition scheme just for service providers has its own, lower limit of ₹50 lakh.
What is the tax rate under composition scheme?
1% (0.5% CGST + 0.5% SGST) for manufacturers and traders, 5% (2.5% CGST + 2.5% SGST) for restaurants not serving alcohol, and 6% (3% CGST + 3% SGST) for the separate service-provider composition scheme. This is charged on your turnover, not collected separately from customers.
Can a composition dealer claim input tax credit?
No. This is the biggest trade-off of the scheme — you pay a small flat percentage of turnover, but you cannot claim ITC on any purchases, including GST paid on raw materials, stock or business expenses.
Can a composition dealer sell in other states or on Amazon/Flipkart?
No. Composition dealers cannot make inter-state outward supplies of goods, and cannot supply through an e-commerce operator that is required to collect TCS (which covers Amazon, Flipkart, Meesho and most marketplaces). Both restrictions rule the scheme out for many growing businesses.
What returns does a composition dealer file?
A quarterly payment statement, CMP-08, by the 18th of the month after each quarter ends, and one annual return, GSTR-4, by 30 June following the financial year. This is far simpler than the monthly GSTR-1/GSTR-3B cycle a regular taxpayer files.
Who cannot opt for the composition scheme at all?
Manufacturers of ice cream, pan masala or tobacco products, casual taxable persons, non-resident taxable persons, suppliers of goods not leviable to GST, and anyone making inter-state supplies or selling through TCS-collecting e-commerce platforms.
Can I switch back to the regular GST scheme later if my business grows?
Yes. If your turnover is approaching the limit, or you need ITC, or you want to sell inter-state/online, you can opt out of composition and move to the regular scheme going forward. Many businesses start on composition to keep compliance light and switch once they scale.
Disclaimer: This article is for general information based on the CGST Act, 2017, related rules and current CBIC guidance as of September 2026. Turnover limits, rates and due dates can change — please verify the latest position or consult a professional before acting.