GST Composition Scheme: Eligibility, Rates & Rules Explained

The GST Composition Scheme lets a business with turnover up to ₹1.5 crore (₹75 lakh in special category states) pay tax at a flat 1%, 5%, or 6% of turnover instead of the standard rate, in exchange for giving up Input Tax Credit and filing quarterly instead of monthly. It’s governed by Section 10 of the CGST Act, 2017, read with Rules 3 to 7 of the CGST Rules. Whether it actually saves you money depends on who you sell to and who you buy from — for many B2B businesses, it doesn’t. Call or WhatsApp us on 70 9232 9232 if you want that worked out for your specific numbers rather than guessed at.

Table of Contents

• Who is actually eligible
• The services carve-out for goods businesses
• The tax rates, and what you give up for them
• Who can’t opt in, even under the turnover limit
• Filing under composition: quarterly, not monthly
• Bill of Supply, not tax invoice
• Opting in and opting out
• Whether composition actually makes sense for you
• Frequently asked questions
• Can I claim Input Tax Credit under the composition scheme?
• Can a restaurant on Swiggy or Zomato use the composition scheme?
• What’s the turnover limit for the composition scheme?
• Is GSTR-9A still required for composition taxpayers?
• Can I sell to other states under composition?
• How do I switch from composition to regular registration?
• Talk to a consultant, not a call centre

Who is actually eligible

Two separate thresholds apply, and businesses frequently confuse them. A trader, manufacturer, or retailer of goods can opt in if aggregate turnover in the preceding financial year was up to ₹1.5 crore (₹75 lakh in Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, and Uttarakhand). Service providers have their own, separate scheme under Section 10(2A), introduced in 2019, capped at ₹50 lakh turnover — this is why a ₹1.2 crore trading business and a ₹40 lakh consulting firm can both technically qualify, under two different sub-sections with two different rates.

The services carve-out for goods businesses

A goods-based composition dealer under Section 10(1) isn’t required to be 100% goods. The rules allow incidental services up to 10% of the preceding year’s turnover, or ₹5 lakh, whichever is higher. A hardware trader who also does occasional installation billing, for instance, stays eligible as long as that services portion doesn’t cross this line — but it’s a line worth tracking deliberately, not discovering after the fact.

The tax rates, and what you give up for them

• 1% (0.5% CGST + 0.5% SGST) — traders and manufacturers, on turnover.
• 5% (2.5% + 2.5%) — restaurants and food-service businesses not serving alcohol.
• 6% (3% + 3%) — service providers registered under Section 10(2A).

Those rates look low next to the standard 5%, 12%, or 18% slabs, but the comparison is misleading on its own — a composition dealer gets zero Input Tax Credit on purchases. If your input costs (raw materials, rent, professional fees, equipment) carry meaningful GST that you’d otherwise claim back, the real cost of composition is your flat tax rate plus the ITC you’re forgoing, not just the headline percentage. This is exactly why composition tends to suit low-input-cost, high-margin retail and service businesses, and tends to cost more than it saves for anyone buying heavily from GST-registered vendors.

Who can’t opt in, even under the turnover limit

Turnover eligibility alone doesn’t guarantee you can register under composition. You’re excluded if you make any inter-state outward supply of goods, if you’re a casual taxable person or non-resident taxable person, or if you manufacture certain notified goods (ice cream, pan masala, tobacco and tobacco substitutes, and a few others under Section 10(2)(e)). The exclusion that catches the most businesses by surprise: you cannot supply goods or services through an e-commerce operator required to collect tax at source under Section 52 — which covers Amazon, Flipkart, Meesho, Swiggy, and Zomato. A restaurant onboarding onto Zomato or a seller listing on Amazon gives up composition eligibility the moment they do, regardless of turnover. If that’s your situation, see our guides for restaurants & cloud kitchens or Amazon, Flipkart & Meesho sellers.

Filing under composition: quarterly, not monthly

Composition dealers skip the GSTR-1/GSTR-3B monthly cycle entirely. Instead, you file CMP-08 — a quarterly statement-cum-challan for paying tax — by the 18th of the month following each quarter, and GSTR-4, an annual return, by 30th April following the financial year. The older GSTR-9A annual return for composition taxpayers was discontinued from FY 2019-20 onwards and folded into GSTR-4, so if you’re researching composition compliance and see GSTR-9A referenced, that’s outdated for any recent financial year.

Bill of Supply, not tax invoice

A composition dealer cannot issue a tax invoice and cannot charge GST separately on the bill to a customer — you issue a Bill of Supply instead, and the flat tax rate comes out of your own margin, not added on top of the customer’s price. This also means your B2B customers can’t claim Input Tax Credit on anything you sell them, which is often the real deciding factor for whether composition suits your customer base.

Opting in and opting out

An existing regular taxpayer opts in by filing CMP-02 before the start of the financial year in which they want composition to apply — it isn’t something you can switch to mid-year. A new registrant can elect composition directly at the time of registration, on Form REG-01. Opting out works the other way: if your turnover crosses the threshold, or you simply choose to move to regular registration, you file CMP-04 within 7 days of the event, or before the start of the financial year for a voluntary switch.

Whether composition actually makes sense for you

We don’t recommend composition by default, and we don’t discourage it by default either — it genuinely depends on your numbers. A retail shop buying mostly from unregistered or composition suppliers, with thin ITC to claim anyway, often comes out ahead on the flat rate. A business buying raw materials, equipment, or services with substantial GST charged on the invoice — most manufacturers, contractors, and B2B service firms in our client base — usually loses more in forgone ITC than it saves on the lower rate, and loses the ability to sell into other GST-registered businesses that want their own ITC. We work this out with actual numbers before recommending either way, not as a rule of thumb.

Frequently asked questions

Talk to a consultant, not a call centre

Deciding between composition and regular registration — or filing correctly once you’re on either — is exactly the kind of thing worth a real conversation rather than a generic guide. Call or WhatsApp 70 9232 9232 and we’ll work through your actual numbers. GST Registration starts at ₹1,500, and GST Return Filing starts at ₹5,990 + GST per year for up to 30 bills a month. Rated 5.0★ across 1,000+ Google reviews, serving businesses since 2017.

Already decided and need to register or file? Start with our GST Registration overview or our GST Return Filing guide. Running a restaurant or cloud kitchen and weighing this exact decision? See our Filing or Registration guide for restaurants & cloud kitchens. Trying to reconcile your returns once you’re past composition? See our GST Reconciliation guide.