GST Composition Scheme: Eligibility, Limits & Returns

The gst composition scheme is a simplified GST option for small businesses. Instead of charging GST on every invoice and filing detailed monthly returns, an eligible business pays tax at a low flat rate on its turnover and files far fewer returns. The trade-off: you cannot collect GST from customers, cannot claim input tax credit, and cannot make inter-state sales.

What is the GST composition scheme?

The GST composition scheme is a simplified tax option for small taxpayers whose turnover is within a notified limit. They pay GST at a flat percentage of turnover, file a quarterly statement and an annual return, and issue a bill of supply instead of a tax invoice. It cuts compliance work but removes input tax credit.

It suits small traders, manufacturers and restaurants that sell mostly to end customers within their own state, where the lower compliance burden outweighs the loss of ITC.

Who is eligible?

Eligibility is mainly about turnover and the nature of your business. As of 2026, the aggregate annual turnover limit for the composition scheme is commonly cited at ₹1.5 crore for most states (with a lower limit for certain special-category states), and a separate, smaller limit applies for service providers under a related composition option.

These limits are revised by notification, so do not rely on the figures above. Confirm the current turnover limit for your state and business type on gst.gov.in or with your CA. Beyond turnover, you are generally not eligible if you:

• Make inter-state outward supplies (sales to other states).
• Supply through an e-commerce operator that collects tax at source.
• Manufacture certain notified goods (such as some tobacco, pan masala and ice cream products).
• Are a casual taxable person or non-resident taxable person.

Composition scheme vs regular GST

Here is how the two regimes compare so you can judge which fits:

• Tax rate — composition: a low flat rate on turnover. Regular: normal slab rates (5/12/18/28%) on each supply.
• Charging GST to customers — composition: not allowed. Regular: you charge and collect GST.
• Input tax credit — composition: not available. Regular: ITC available on eligible purchases.
• Inter-state sales — composition: not allowed. Regular: allowed.
• Document issued — composition: bill of supply. Regular: tax invoice.
• Returns — composition: CMP-08 quarterly plus GSTR-4 annually. Regular: GSTR-1 and GSTR-3B (monthly or quarterly).
• Best for — composition: small, local, B2C businesses. Regular: businesses with B2B customers who need ITC, or inter-state sales.

What tax rate do composition dealers pay?

Composition dealers pay a flat percentage of turnover rather than slab-wise GST. As of 2026, the commonly cited rates are around 1% for traders, 1% for manufacturers, 5% for restaurants (not serving alcohol), and a separate rate for the service-provider composition option.

These rates are set by notification and can change, so verify the exact rate for your category on gst.gov.in or with your CA before you file. Remember: you pay this from your own pocket — you do not collect it from customers.

Which returns must you file (CMP-08, GSTR-4)?

The reduced filing load is the scheme's main attraction:

• CMP-08: a quarterly statement-cum-challan to declare turnover and pay the tax.
• GSTR-4: an annual return summarising the year's supplies and tax.

You opt into the scheme using form CMP-02 (typically before the start of a financial year). Due dates change, so confirm the current deadlines on the GST portal before each filing. Even with fewer returns, keep your sales records clean — penalties still apply for wrong declarations.

Key restrictions

The scheme's simplicity comes with firm limits you must respect:

• No input tax credit: you cannot claim back GST paid on your purchases, so it becomes a cost.
• No inter-state outward supply: you can sell only within your own state.
• Bill of supply, not tax invoice: you must issue a bill of supply and cannot show GST on it. See bill of supply vs tax invoice to get the document right.
• Mention scheme status: display "composition taxable person" on signboards and documents as required.

If your customers are businesses that need ITC, the composition scheme can actually cost you sales — they may prefer a regular dealer who can pass on credit.

This guide is part of our GST guide for small businesses. Whether you are on the composition scheme or regular GST, Invodo handles the right document — bill of supply or tax invoice — and keeps your records filing-ready. See Invodo's plans and pick the one that fits your business.