What is Composition Scheme?
Last updated: 27 June 2026
The GST Composition Scheme is an optional, simplified tax compliance arrangement for small businesses that allows them to pay GST at a flat, lower rate on their turnover — instead of maintaining full invoice-level records — provided their aggregate annual turnover does not exceed the prescribed limit.
The scheme dramatically reduces the compliance burden: instead of filing monthly GSTR-1 and GSTR-3B with detailed invoice data, a composition dealer files a quarterly statement (CMP-08) and an annual return (GSTR-4).
Who is eligible?
| Category | Turnover limit | GST rate |
|---|---|---|
| Manufacturers / traders | Up to ₹1.5 crore (₹75 lakh for special-category states) | 1% (0.5% CGST + 0.5% SGST) |
| Restaurants (no alcohol) | Up to ₹1.5 crore | 5% |
| Service providers (Sec 10(2A)) | Up to ₹50 lakh | 6% |
Fact box. A composition dealer cannot collect GST from customers or issue a tax invoice — they must issue a "Bill of Supply" instead. This means customers cannot claim ITC from a composition dealer, which can be a dealbreaker for B2B buyers.
Key restrictions
- No ITC: Composition dealers cannot claim Input Tax Credit on their purchases.
- No inter-state supply: Cannot sell goods to buyers in another state under the composition scheme.
- No e-commerce: Cannot supply goods through e-commerce operators.
- Must display status: The words "Composition Taxable Person" must appear on all signboards and invoices.
Returns for composition dealers
- CMP-08: Quarterly tax statement (self-assessed tax payment); due by the 18th of the month following the quarter.
- GSTR-4: Annual return; due by 30 June following the financial year (the deadline was extended from the earlier 30 April; confirm the current year's date on the GST portal before filing).
Frequently asked questions
Can a composition dealer opt out mid-year? Yes. A dealer can opt out voluntarily or is automatically shifted to the regular scheme if turnover crosses the limit during the year. Once out, they cannot re-enter until the next financial year.
Is a composition dealer required to generate e-invoices or e-way bills? Composition dealers are exempt from e-invoicing. E-way bill rules still apply for movement of goods if the consignment value exceeds the applicable threshold.
Sources: CBIC — cbic.gov.in; GSTN — gstn.org.in
General information, not professional advice. Verify on the official portal for your case. Reviewed by a Chartered Accountant; last updated 27 June 2026.
Related: GSTIN · Input Tax Credit (ITC) · Reverse Charge Mechanism (RCM)