GST composition scheme: eligibility, limits and rates
The GST composition scheme lets small businesses with turnover up to ₹1.5 crore pay a flat rate on turnover, with quarterly payment and annual return.
Short answer
The GST composition scheme is an optional scheme under section 10 of the CGST Act, 2017 that lets small taxpayers pay GST at a fixed percentage of turnover with simpler returns. Goods traders and manufacturers with aggregate turnover up to ₹1.5 crore can opt in, as can eligible service providers up to ₹50 lakh under a separate rate.
- Turnover limit
- ₹1.5 crore (₹75 lakh in some special category states)
- Service providers
- Up to ₹50 lakh at 6% (3% CGST plus 3% SGST)
- Payment
- CMP-08 quarterly, by the 18th
- Annual return
- GSTR-4 by 30 April
Rates under the composition scheme
Composition dealers pay tax on turnover in their state at a flat rate, split equally between CGST and SGST. The rates are 1% for manufacturers and traders of goods, 5% for restaurants not serving alcohol, and 6% for eligible suppliers of services or mixed suppliers under section 10(2A). Composition dealers cannot collect tax from customers and issue a bill of supply instead of a tax invoice.
Restrictions
The scheme suits small, local, B2C businesses, but it comes with limits under section 10 and the rules that rule it out for many startups. The main restrictions are these.
- No input tax credit on purchases
- No inter-state outward supplies of goods
- Not available to manufacturers of certain notified goods such as ice cream and pan masala
- Cannot charge GST on invoices, so B2B customers get no credit
- All registrations under the same PAN must opt for the scheme together
Why it matters for startups
The composition scheme can cut compliance for a local shop, café or small manufacturer, but most tech and B2B startups are better off under the regular scheme because their customers want input tax credit and they sell across states. To opt in, file Form CMP-02 before the start of the financial year. If turnover crosses the limit during the year, you must switch to the regular scheme.
Related services
Sources
Written by the Refogo Editorial Team from the official sources above and checked on 2026-10-31. Laws, rates and due dates change, and authorities often extend deadlines, so confirm your own case with a qualified professional. This is general information, not legal or tax advice. Read our editorial policy or report an error to support@refogo.com.
Common questions
Can a service provider opt for the composition scheme?
Yes. Suppliers of services with turnover up to ₹50 lakh can opt under section 10(2A) and pay 6%, subject to conditions.
Can composition dealers sell online?
Composition taxpayers supplying goods can sell through e-commerce operators within their state, subject to the conditions notified for this purpose.
How do I leave the composition scheme?
By filing Form CMP-04 to opt out voluntarily, or automatically when turnover crosses the limit, after which regular returns apply.