Composition Scheme under GST: Limit, Rates, Rules
Definition
The composition scheme is an optional, simpler GST scheme for small taxpayers: they pay tax at a low fixed percentage of turnover, file quarterly, but cannot charge GST on their invoices or claim input tax credit.
| Term | Composition scheme (GST) |
|---|---|
| In Hindi | कंपोज़िशन योजना (GST) |
| Area | GST & tax |
| Search phrase | composition scheme under GST |
| Try it | Bill of supply |
कंपोज़िशन योजना (GST) — हिंदी में अर्थ
कंपोज़िशन योजना छोटे करदाताओं के लिए GST की वैकल्पिक, सरल योजना है: वे टर्नओवर पर कम तय दर से टैक्स देते हैं और तिमाही रिटर्न भरते हैं, पर बिल पर GST नहीं वसूल सकते और इनपुट टैक्स क्रेडिट नहीं ले सकते।
Limits and rates
Goods suppliers, manufacturers and restaurants: aggregate turnover up to ₹1.5 crore in the previous year (lower in some special-category states). Rates on turnover in the state: manufacturers 1%, traders 1% of taxable turnover, restaurants not serving alcohol 5% — each split equally between CGST and SGST.
Service providers (and mixed suppliers) can use the separate composition option under section 10(2A) with turnover up to ₹50 lakh, paying 6%.
Conditions and who cannot opt
A composition taxpayer cannot make inter-state outward supplies, cannot supply goods not taxable under GST, cannot collect tax from customers and must issue a bill of supply instead of a tax invoice, mentioning 'composition taxable person, not eligible to collect tax on supplies'. Manufacturers of notified goods such as ice cream, pan masala and tobacco products are excluded.
Tax is paid quarterly through CMP-08 and an annual return GSTR-4 is filed. Tax on inward supplies under reverse charge is paid at the normal rate, without ITC.
Example
A small fabrication unit with ₹1.2 crore turnover, all in Gujarat, opts in: it pays 1% (0.5% CGST + 0.5% SGST) on quarterly turnover of ₹30 lakh = ₹30,000, but cannot claim the GST it paid on steel. A unit that sells mostly to registered businesses usually loses customers this way, because they get no ITC.
Related tools and guides
Frequently asked questions
What is the composition scheme limit?
₹1.5 crore aggregate turnover for goods suppliers and manufacturers (lower in some special-category states), and ₹50 lakh for service providers under section 10(2A).
Can a composition dealer claim input tax credit?
No. And its customers cannot claim ITC on its bills either.
Can a composition dealer sell to another state?
No inter-state outward supplies are allowed under the scheme.
Which returns does a composition dealer file?
CMP-08 every quarter to pay tax, and GSTR-4 once a year.
Is composition good for a manufacturer selling to factories?
Usually not — B2B buyers prefer suppliers whose GST they can claim as credit.
Related terms
- Bill of supplyA bill of supply is the GST document issued instead of a tax invoice when no tax can be charged — by a composition taxpayer, or by a registered person supplying exempt goods or services. It shows no GST amount.
- Blocked credit under GST (Section 17(5))Blocked credit is GST paid on purchases that cannot be claimed as input tax credit even when used in business, because section 17(5) of the CGST Act specifically disallows it — such as food, most passenger cars and construction of buildings.
- GST registration limitA business must register under GST once its aggregate turnover in a financial year crosses ₹40 lakh if it supplies only goods, or ₹20 lakh if it supplies services — with lower limits in some special-category states — or earlier if it falls in a compulsory registration category.
- GSTR-1 vs GSTR-3BGSTR-1 is the return of outward supplies — invoice-wise details of sales. GSTR-3B is the summary return in which tax is actually paid and input tax credit claimed. Both are filed by regular GST taxpayers.
- ITC reversal under GSTITC reversal means paying back input tax credit already claimed, or not claiming it, when the conditions for credit are not met — for example the supplier is not paid within 180 days, or inputs are used for exempt supplies.
- Nil-rated, exempt, zero-rated and non-GST supplyNil-rated supplies carry a 0% GST rate; exempt supplies are wholly exempted from GST; zero-rated supplies are exports and supplies to SEZs, where ITC is still allowed; non-GST supplies are items outside GST altogether, such as petrol and alcohol for human consumption.