The composition scheme lets a small registered business pay GST as a flat percentage of its turnover, file one short statement a quarter and one return a year, and skip invoice-level reporting. Goods businesses qualify with previous-year turnover up to ₹1.5 crore (₹75 lakh in eight States). Service providers have a separate option up to ₹50 lakh. The price is real: you cannot charge GST to customers, you cannot claim input tax credit, and you cannot sell to other States. It suits a local shop or restaurant selling to consumers. It rarely suits anyone whose customers are businesses.
Two schemes, not one
| Regular composition (section 10(1)) | Services option (section 10(2A)) | |
|---|---|---|
| Meant for | Traders, manufacturers, restaurants | Service providers (and mixed suppliers) not eligible for the regular scheme |
| Turnover limit (previous year) | ₹1.5 crore; ₹75 lakh in Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Uttarakhand | ₹50 lakh |
| Total rate (central plus State) | Manufacturers 1% of turnover; restaurants 5%; traders and other suppliers 1% of taxable turnover | 6% of turnover |
| Services allowed on the side | Up to 10% of previous-year turnover or ₹5 lakh, whichever is higher | The whole business can be services |
The limits and conditions are in section 10 of the CGST Act, with the ₹1.5 crore and ₹75 lakh figures set by Notification No. 14/2019-Central Tax. The rates are in rule 7, which gives the central half: 0.5%, 2.5%, 0.5% and 3%. An equal State tax applies alongside, which gives the totals in the table.
The turnover test is PAN-wide. If you have registrations in two States on one PAN, their turnover is added, and all of them must opt in together or none can. If you are registering for the first time and want composition from day one, our GST registration service can file the application with the composition option selected.
Who cannot opt in
Even under the limit, section 10 and rule 5 keep these out:
- Anyone making inter-State outward supplies, of goods or services. A single sale to a customer in another State breaks eligibility.
- Suppliers of anything not taxable under GST, such as petroleum products outside GST, alongside their business.
- Suppliers through e-commerce operators that collect tax at source. This still bars services. For goods, the law was relaxed from October 2023 for supplies within your own State, on conditions, so check the current conditions before listing on a marketplace.
- Manufacturers of ice cream, pan masala and tobacco products, notified as excluded.
- Casual and non-resident taxable persons.
- Under the regular scheme only, service businesses beyond the 10% or ₹5 lakh allowance. Restaurants are treated as a supply covered by the scheme, which is why they get their own rate.
What changes in daily business
- No GST on your bills. You issue a bill of supply, not a tax invoice (section 31(3)(c)), with the words “composition taxable person, not eligible to collect tax on supplies” at the top. The tax comes out of your price.
- No input tax credit on purchases, rent or capital goods. GST you pay to suppliers is a cost.
- Your business customers get no credit from buying from you. This is the main reason B2B suppliers stay out.
- A signboard. “Composition taxable person” must appear on the board at every place of business.
- Reverse charge still applies. Where a purchase falls under reverse charge, you pay that tax at the normal rate, in cash.
To see the trade-off, take a stationery shop with ₹90 lakh of sales, mostly to walk-in customers. Under composition it pays about ₹90,000 a year and keeps its prices simple. A components trader with the same turnover selling to manufacturers would lose customers, who want a tax invoice they can claim credit on.
Getting in, and the filings
If you are applying for registration, choose composition in the application itself. If you are already registered, file Form GST CMP-02 on the portal before the start of the financial year you want it from, so by 31 March, and file ITC-03 within 60 days to reverse credit on stock held on the switch-over date (rule 3). The portal’s CMP-02 FAQ confirms there is no officer approval. You are marked as a composition taxpayer when you file.
Once in, rule 62 sets the calendar:
| Filing | What it is | Due |
|---|---|---|
| CMP-08 | Quarterly statement and payment of tax, in cash | 18th of the month after each quarter |
| GSTR-4 | Annual return, including purchase details | 30 June after the financial year (from FY 2024-25; earlier years were 30 April) |
You do not need to opt in again every year. The option continues until you withdraw or become ineligible.
Getting out, voluntarily or not
Section 10(3) ends the option from the day your turnover in the year crosses the limit. From that day you are a regular taxpayer, issue tax invoices and file regular returns. The same applies the day you make an inter-State sale or start any other activity that disqualifies you. You can also leave by choice, through the portal’s withdrawal form.
Do not stay in when you are ineligible. Section 10(5) lets the officer recover the tax you would have paid as a regular taxpayer, with a penalty on top.
Frequently asked questions
Is composition worth it if I am under the registration limit anyway?
Only if you have to register for another reason. Composition is a way to pay GST once registered, not a reason to register.
Can a freelancer or consultant use composition?
Possibly, under the services option up to ₹50 lakh, but only with no inter-State clients. Most freelancers have clients in other States or abroad, which rules it out.
Can I export under composition?
No. An export is an inter-State supply under GST, so it is not allowed for a composition taxpayer.
Complianto (complianto.in), operated by Mentorcorp Private Limited, is a private consultancy and is not affiliated with any government body. We do not issue official documents. We charge a professional fee for application assistance and advisory services. Applicants can apply directly to the government without our fees via the official portals: MCA (mca.gov.in), Income Tax (incometax.gov.in), GST (gst.gov.in), MSME (udyamregistration.gov.in), FSSAI (foscos.fssai.gov.in), Startup India (startupindia.gov.in), and IP India (ipindia.gov.in).
This article is general information, not legal or tax advice.
