The composition scheme is a simplified GST option where small businesses pay a flat, low rate of tax on turnover instead of regular GST, with no input tax credit and minimal filing. It is available to goods suppliers with turnover up to ₹1.5 crore (₹75 lakh in some special-category states) and to eligible service providers with turnover up to ₹50 lakh.
A composition dealer pays tax quarterly through CMP-08 and files one annual return, GSTR-4 — instead of the monthly GSTR-1/GSTR-3B cycle. Indicative rates are around 1% of turnover for traders and manufacturers, 5% for restaurants, and 6% under the services scheme. In exchange, you cannot collect GST from customers (you issue a bill of supply, not a tax invoice), cannot claim any input tax credit, and cannot make inter-state outward supplies.
Whether it suits you depends on who you sell to. For B2C businesses — retailers, restaurants, local services — the paperwork saving is real. For B2B sellers it usually backfires: your buyers get no ITC on your bills, which makes you effectively costlier than a regular-scheme competitor. And with GST 2.0 putting many goods at 5% or nil since September 2025, the cash saving versus regular GST is thinner than it once was — do the arithmetic before opting in.
Two traps: crossing the turnover limit mid-year without switching to the regular scheme from that day, and collecting GST from customers while on composition — both invite demands and penalties. Also remember reverse-charge liabilities still apply to composition dealers in full.
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Reviewed to the law in force in FY 2026-27. General information, not advice — confirm the position for your facts before acting.