Composition scheme
The composition scheme lets small businesses pay GST at a flat percentage of turnover with minimal returns, in exchange for giving up input tax credit and the ability to charge GST to customers.
It is a simplification trade, and the trade is real on both sides. You file quarterly rather than monthly, you keep far less detail, and your tax is a small flat rate on turnover. In return you cannot claim credit on your purchases, and you cannot pass GST on to your customers.
That second restriction is what makes it unsuitable for most B2B businesses. Your customer gets no input tax credit from buying from you, so you are effectively more expensive than a regular supplier charging the same headline price. It suits businesses selling to end consumers, where nobody downstream is claiming credit.
A composition dealer must state on every bill that they are not entitled to collect tax, and issues a bill of supply rather than a tax invoice.
Key facts
- Turnover limit: ₹1.5 crore for goods in most states, ₹75 lakh in specified special-category states.
- Separate scheme for service providers with turnover up to ₹50 lakh, at 6%.
- Rates: 1% for traders and manufacturers, 5% for restaurants not serving alcohol.
- Returns: CMP-08 quarterly, plus an annual return, instead of monthly GSTR-1 and GSTR-3B.
- Cannot claim input tax credit and cannot make inter-state outward supplies of goods.
Who this affects
Small businesses selling mainly to end consumers within one state.
Reviewed September 2026. This is general information about how these rules work, not tax or legal advice, and thresholds and due dates do change. Check your own position with your chartered accountant before acting on it.