The composition scheme exists because monthly GST compliance is disproportionate for a small trader. In exchange for a flat percentage of turnover and quarterly rather than monthly filing, you give up two things: the right to collect GST from customers, and the right to claim input tax credit on your purchases. Whether that is a good trade depends almost entirely on who your customers are.
Eligibility and rates
| Who | Turnover limit | Rate |
|---|---|---|
| Traders and manufacturers | ₹1.5 crore | 1% of turnover |
| Restaurants (no alcohol) | ₹1.5 crore | 5% of turnover |
| Service providers and mixed suppliers | ₹50 lakh | 6% of turnover |
The ₹1.5 crore limit is lower in special-category states. The ₹50 lakh route for service providers is a separate scheme with its own conditions and is the one most commonly missed by consultants and small agencies who assume composition is for goods only.
Turnover here means aggregate turnover across all GSTINs on the same PAN — you cannot split a business across states to stay under the line.
What you give up
- You cannot charge GST on your invoice. You issue a bill of supply, not a tax invoice, and it must carry the words “composition taxable person, not eligible to collect tax on supplies”.
- You cannot claim input tax credit on purchases. The GST on your inputs becomes a cost.
- You cannot make inter-state outward supplies of goods. Selling to another state pushes you out of the scheme.
- You cannot supply through an e-commerce operator that collects TCS.
- Your registered customers get no credit from you — which is the real commercial cost.
That last point decides most cases. If you sell to consumers, nobody wanted a credit anyway and composition is close to free money. If you sell to registered businesses, your invoice is now 18% more expensive to them in real terms, and they will notice.
The filings
- CMP-08 — a quarterly statement of self-assessed tax with payment, due the 18th of the month following each quarter.
- GSTR-4 — an annual return, due 30 June following the financial year.
- CMP-02 — the election itself, filed before the start of the financial year you want it to apply from.
Against a regular taxpayer filing GSTR-1 and GSTR-3B every month — and now working under the invoice management system and the three-year filing bar — that is a dramatic reduction in monthly work.
Reverse charge does not go away
Composition suppresses your output tax, not your reverse-charge liability. Where RCM applies — goods transport, legal services, and now commercial rent from an unregistered landlord — a composition dealer still pays, and pays at the normal rate, not the composition rate. And there is no credit to claim against it.
When to leave
You must exit the moment you cross the turnover limit, and the exit is not retrospective housekeeping — you become a regular taxpayer from that point and must file accordingly. Businesses that discover the breach at year-end usually face a reconciliation problem on top of the tax.
Voluntary exit is also worth modelling before you grow into B2B. If your customer mix is shifting from consumers to registered businesses, the composition maths inverts well before you hit the turnover limit.
Where we come in
The composition decision is a modelling question, not a filing question — we run your actual input GST and customer mix against both regimes before you elect. Our GST services cover the election, the quarterly CMP-08 cycle and GSTR-4, and the exit if you outgrow it.
This article is general information, not professional advice. Limits, rates and dates change by notification — confirm the position for your own year before acting on it.