GST Composition Scheme: Eligibility, Limits and Rules

The GST composition scheme lets small businesses pay tax as a flat percentage of turnover instead of the usual invoice-by-invoice GST calculation, in exchange for giving up input tax credit. The composition scheme GST limit is 1.5 crore rupees in aggregate annual turnover for most goods suppliers (75 lakh rupees in special category states), and a separate 50 lakh rupee limit applies to a standalone scheme for small service providers.

Eligibility and turnover limits

The composition scheme exists for small taxpayers who want to trade off some flexibility for a much simpler compliance load. Eligibility is measured on aggregate annual turnover across all businesses registered under the same PAN, not just the turnover of one GSTIN.

Traders, manufacturers, and retailers of goods can opt in as long as their aggregate turnover in the previous financial year did not exceed ₹1.5 crore. Businesses operating from a special category state — broadly the North-Eastern and Himalayan states — have a lower ceiling of ₹75 lakh. Restaurant services that do not serve alcohol are generally covered under this same goods-composition bracket.

Service providers who are not restaurants get their own, separate route: the Section 10(2A) composition scheme for services, capped at ₹50 lakh aggregate turnover. It exists specifically because the original scheme was built around goods and left most service businesses out.

Composition tax rates by category

Unlike the regular scheme, composition tax is not calculated on value added — it is a flat percentage of total turnover, paid regardless of how much (if any) GST the dealer paid on their own purchases.

Category	Rate of turnover
Manufacturers and traders of goods	1% (0.5% CGST + 0.5% SGST)
Restaurants not serving alcohol	5% (2.5% CGST + 2.5% SGST)
Standalone service providers (Section 10(2A))	6% (3% CGST + 3% SGST)

Who cannot opt for the scheme

The composition scheme is deliberately restricted to genuinely small, mostly-local businesses. A few categories are barred outright, regardless of turnover:

• Inter-state suppliers — a business that supplies goods or services across state lines cannot use the composition scheme at all.
• E-commerce sellers — a supplier selling goods through an e-commerce operator that is required to collect tax at source is excluded.
• Suppliers of specified goods — certain notified goods (commonly cited examples include ice cream, pan masala, and tobacco products) are excluded from composition eligibility regardless of the seller's turnover.
• Casual taxable persons and non-resident taxable persons — these categories are structurally incompatible with a scheme built around a settled, ongoing local business.

Because the exact list of excluded goods is periodically updated, treat any specific product list as indicative rather than exhaustive, and confirm current exclusions on the government portal before relying on it for a compliance decision.

CMP-08 and GSTR-4 compliance

The compliance trade-off is the whole point of opting in. A composition dealer files far less often than a regular taxpayer:

• CMP-08 — a quarterly, self-assessed statement-cum-challan used to pay the composition tax, due by the 18th of the month following the end of each quarter.
• GSTR-4 — an annual return summarising the year's turnover and tax paid, due by 30 April following the end of the financial year.

That is the entire regular filing cycle — no monthly GSTR-1, no monthly or quarterly GSTR-3B. It is a meaningful reason small businesses choose the scheme even though it costs them their input tax credit.

No tax on invoice, no input tax credit

This is the trade-off that matters most to anyone transacting with a composition dealer, not just the dealer themselves. A composition taxpayer issues a bill of supply, not a tax invoice, and is legally barred from charging GST as a separate line item. The composition tax comes entirely out of the dealer's own margin.

Two consequences follow directly. First, a composition dealer cannot claim input tax credit on their own purchases — they pay the flat rate on turnover regardless of how much GST they paid upstream. Second, and more important for buyers, a business that purchases from a composition dealer gets no input tax credit at all on that purchase, because there was never a GST component on the invoice to claim. If you are a regular taxpayer sourcing from a supplier and expecting to offset the GST you pay them, confirming they are not a composition dealer is a prerequisite, not an afterthought.

How to spot a composition dealer before you deal with one

Composition status is not always obvious from a bill of supply alone, especially if a vendor is inconsistent about invoice formatting. The reliable way to check is to look up their GSTIN directly. A GSTIN verification lookup returns a taxpayer type field that shows "Regular" or "Composition" as reported to GSTN, alongside the GSTIN's current status, registration date, and jurisdiction.

This matters most during vendor onboarding, before a purchase order is cut and before accounts payable builds an expectation of input tax credit into a landed-cost calculation. Combined with the supplier's filing history — visible on the same lookup — it also tells you whether the counterparty is even currently compliant, which is directly relevant if you are relying on GSTR-2B and the Invoice Management System to keep your own credit clean.

GET https://gstinapi.com/api/get-taxpayer-info/27AAACR5055K1Z7
X-API-Key: YOUR_API_KEY

// response includes:
// "taxpayerType": "Regular" | "Composition"
// "status": "Active" | "Cancelled" | "Suspended"

Frequently asked questions

What is the turnover limit for the GST composition scheme?

For traders and manufacturers it is up to 1.5 crore rupees in aggregate annual turnover (75 lakh rupees in special category states). A standalone services composition scheme under Section 10(2A) has a separate, lower limit of 50 lakh rupees.

Can a composition dealer charge GST on their invoice?

No. A composition dealer must issue a bill of supply, not a tax invoice, and cannot show GST as a separate line item. They pay the composition tax themselves, out of their own margin, based on total turnover.

Can I claim input tax credit on a purchase from a composition dealer?

No. Because a composition dealer does not charge GST on their invoice, there is no tax component for you to claim as input tax credit. This is one of the main reasons B2B buyers check a supplier’s taxpayer type before onboarding them.

Can an e-commerce seller opt for the composition scheme?

Generally no. A person supplying goods through an e-commerce operator that is required to collect tax at source is barred from the composition scheme, along with inter-state suppliers and suppliers of certain notified goods.

What returns does a composition dealer file?

A composition dealer pays self-assessed tax quarterly using form CMP-08, due on the 18th of the month after the quarter ends, and files an annual return in form GSTR-4.

How can I tell if a GSTIN belongs to a composition dealer?

A GSTIN verification lookup returns a taxpayer type field. Regular taxpayers show as "Regular"; composition dealers show as "Composition." Checking this before you accept an invoice tells you upfront whether input tax credit is even possible.