A simpler, lower-rate GST option for small businesses, and the trade-offs that come with it
The composition scheme lets a small business pay GST at a low flat rate on turnover, 1% for traders and manufacturers, 5% for restaurants (without alcohol), and 6% for eligible service providers, with a single quarterly payment (CMP-08) and one annual return instead of monthly filing. The trade-offs are significant: you cannot claim input-tax credit, you cannot charge GST to your customers (you pay it from your own margin), and you cannot make inter-state supplies or sell through an e-commerce operator. The turnover limit is Rs 1.5 crore for goods (Rs 75 lakh in special-category states) and Rs 50 lakh for the service scheme.
Last reviewed:
Guidance, not advice. We explain the rules, we don't assess your situation. Always seek financial or tax advice from your accountant, or contact Income Tax Department. Read our editorial scope →
Rates and turnover limits
The composition rate depends on what you do, and eligibility depends on your turnover.
Composition scheme rates and limits
Business type
Composition rate
Turnover limit
Traders and manufacturers (goods)
1% (0.5% CGST + 0.5% SGST)
Rs 1.5 crore (Rs 75 lakh special states)
Restaurants (without alcohol)
5% (2.5% + 2.5%)
Rs 1.5 crore
Service providers (special scheme)
6% (3% + 3%)
Rs 50 lakh
What you give up
The low rate comes with real restrictions, and they decide whether the scheme suits you.
warningComposition suits a small, local, business-to-consumer operation with low input costs. If you sell inter-state, sell online, or have GST-registered customers who need to claim credit, the scheme does not fit.
No input-tax credit on your purchases
You cannot charge GST to customers, the composition tax comes out of your margin
No inter-state outward supplies
Cannot supply through an e-commerce operator
Must show 'composition taxable person' on signage and bills of supply
Who the scheme suits
Composition works well for a small local trader, a neighbourhood restaurant, or a small service provider whose customers are individuals (who cannot use input credit anyway) and whose own input costs are modest. It simplifies compliance dramatically, one quarterly payment and an annual return. It does not suit a business selling to other businesses (who want a GST invoice for their credit), selling across state lines, or selling online, all of which force the regular scheme.
tipBecause a composition dealer cannot pass on GST, the effective cost is the flat rate on your whole turnover. Compare that against your likely regular-scheme net GST (output minus input credit) before opting in.
1% for traders and manufacturers of goods (0.5% CGST + 0.5% SGST), 5% for restaurants without alcohol, and 6% for eligible service providers under the special scheme. The rate is charged on your turnover, and because you cannot pass GST on to customers, it effectively comes out of your margin.
What is the turnover limit for composition?+
Rs 1.5 crore for suppliers of goods (Rs 75 lakh in special-category states), and Rs 50 lakh for the service-provider scheme under Section 10(2A). Cross the limit and you must move to the regular scheme. The limit is based on aggregate turnover across your PAN.
Can a composition dealer claim input-tax credit?+
No. Giving up input-tax credit is one of the core trade-offs of the scheme, along with not being able to charge GST to customers. So a business with significant GST-bearing inputs, or with business customers who need a GST invoice for their own credit, is usually better off on the regular scheme.
Can I sell online or inter-state under composition?+
No. A composition dealer cannot make inter-state outward supplies and cannot supply through an e-commerce operator. The scheme is built for small, local business-to-consumer operations. If you sell across state lines or through a marketplace, you must use the regular GST scheme.