The composition scheme lets small businesses pay a flat low GST rate without detailed invoicing. But it comes with restrictions on ITC, inter-state sales, and e-commerce. Here is the complete guide.
The GST composition scheme under Section 10 of the CGST Act is a simplified tax payment option for small businesses. Instead of charging GST on every invoice at the applicable rate and filing detailed monthly returns, composition dealers pay a flat percentage of their turnover as tax — with significantly less paperwork.
The scheme was designed for small manufacturers, traders, and restaurants whose turnover is below Rs 1.5 crore (Rs 75 lakh for special category states). Service providers with turnover up to Rs 50 lakh can also opt in under a special provision added later.
The trade-off is significant: you cannot charge GST to customers (no tax invoices), you cannot claim input tax credit on purchases, you cannot make inter-state sales, and you cannot sell through e-commerce platforms. For businesses that sell locally to end consumers and have low input costs, the scheme saves time and money. For businesses that sell B2B or across states, it is restrictive.
This guide covers eligibility criteria, composition rates after GST 2.0, how to opt in, filing requirements, and when regular registration is a better choice. Use our GST calculator to compare your tax under composition vs regular scheme.
Flat rates based on business type — much simpler than regular GST
| Feature | Business Type | Composition Rate |
|---|---|---|
| Manufacturers (goods) | 1% of turnover (0.5% CGST + 0.5% SGST) | |
| Traders (goods) | 1% of turnover (0.5% CGST + 0.5% SGST) | |
| Restaurants (serving food — no alcohol) | 5% of turnover (2.5% CGST + 2.5% SGST) | |
| Service providers (Section 10(2A)) | 6% of turnover (3% CGST + 3% SGST) | |
| Turnover limit — goods | Up to Rs 1.5 crore (Rs 75 lakh for special states) | |
| Turnover limit — services | Up to Rs 50 lakh | |
| Filing frequency | Quarterly (CMP-08) + Annual (GSTR-4) | |
| Tax invoice allowed? | No — must issue Bill of Supply |
You must meet ALL these conditions
Is it right for your business?
Choose composition if: You sell locally to end consumers (B2C), your input costs are low relative to sales, you want minimal paperwork, and you do not sell online or across state borders. Typical businesses: local kirana stores, small restaurants, neighbourhood bakeries, and small manufacturers selling within the district.
Choose regular registration if: You sell B2B (your customers need tax invoices for ITC), you make inter-state sales, you sell on e-commerce platforms, your input costs are high (ITC saves you money), or you plan to grow beyond Rs 1.5 crore turnover. Typical businesses: wholesalers, exporters, e-commerce sellers, service companies, and growing businesses.
The ITC trap: Many small businesses choose composition for the lower rate without considering the ITC loss. If you buy goods with 18% GST and sell at 1% composition rate, you lose the 18% ITC on purchases. On Rs 10 lakh annual purchases, that is Rs 1.8 lakh in lost credits. Compare this with the tax saved — if your turnover is Rs 15 lakh, composition tax is Rs 15,000 while regular GST at 18% with full ITC might result in lower net tax. Use our GST calculator to model both scenarios.
If you opt for regular registration, myBillPlease makes compliance easy — automatic tax invoices, HSN codes, ITC tracking, and auto-generated GSTR-1 and GSTR-3B reports. The free plan covers everything a small business needs.
Composition dealers have significantly less filing compared to regular taxpayers:
CMP-08 (Quarterly): A simple challan-cum-statement filed every quarter. It contains total turnover, tax payable, and tax paid. Due by the 18th of the month following the quarter. This is much simpler than GSTR-1 and GSTR-3B.
GSTR-4 (Annual): An annual return filed by April 30 following the financial year. It summarises your entire year — total turnover, tax paid through CMP-08, details of inward supplies, and tax liability reconciliation.
No GSTR-1: Composition dealers do not file GSTR-1. Since they issue Bills of Supply (not tax invoices), there is no invoice-level reporting.
No GSTR-3B: The quarterly CMP-08 replaces GSTR-3B for composition dealers.
Late fees: Late filing of CMP-08 attracts Rs 50 per day (Rs 25 CGST + Rs 25 SGST) up to Rs 10,000. Late filing of GSTR-4 attracts Rs 100 per day (Rs 50 CGST + Rs 50 SGST) up to Rs 5,000.
Opting in: Existing regular taxpayers can switch to composition at the beginning of any financial year. File GST CMP-02 on the GST portal before March 31 of the preceding year. New businesses can opt for composition during registration itself by selecting the option in the registration form.
Opting out: File GST ITC-01 within 30 days of opting out to claim ITC on stock held on the date of switching to regular. This recovers the ITC you missed during the composition period on unsold stock. File GST CMP-04 to intimate the portal about withdrawal from the scheme.
Automatic exit: If your turnover crosses Rs 1.5 crore during a financial year, or you make an inter-state supply, or you start selling on e-commerce — you automatically cease to be a composition dealer and must register as a regular taxpayer from that date. Start issuing proper tax invoices with all mandatory fields and file GSTR-1 and GSTR-3B from that month onwards.
myBillPlease handles all regular GST compliance — tax invoices, ITC tracking, GSTR reports. Free plan with unlimited invoices.
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