What is Composition Scheme?

The composition scheme lets small businesses pay GST at a flat percentage of turnover instead of the normal rate, in exchange for giving up input tax credit.

The turnover limit is ₹1.5 crore for goods and ₹50 lakh for services. Rates are 1% for traders and manufacturers, 5% for restaurants and 6% for other service providers.

A composition dealer cannot collect GST from customers, cannot claim input tax credit, and cannot make inter-state outward supplies. They file one annual return, GSTR-4, plus a quarterly statement.

Why it matters

It suits a business selling to consumers, where nobody needs an input credit. It is usually wrong for one selling to other businesses, who will go elsewhere for a creditable invoice.

A worked example

A retailer with ₹80,00,000 of turnover compares composition against the regular scheme.

Illustrative figures. Your own numbers will differ — that is what the quote is for.
Composition rate for a trader	1% of turnover
Composition tax payable	₹80,000
Input credit available under composition	Nil
Returns under composition	CMP-08 quarterly, GSTR-4 annually
Returns under the regular scheme	GSTR-1 and GSTR-3B monthly
Tax that may be charged to customers	None — composition tax comes out of margin

For a retailer selling to consumers, ₹80,000 and four filings a year is usually the better deal. For a wholesaler selling to registered businesses it is the wrong choice at any turnover, because customers get no credit on the invoice.

The statutory position

Each figure with the provision it comes from, so it can be checked.
What	Position	Source
Turnover limit, goods	₹1,50,00,000	Section 10(1), CGST Act 2017
Turnover limit, services	₹50,00,000	Section 10(2A), CGST Act 2017
Rate, manufacturers and traders	1% of turnover	Rule 7, CGST Rules 2017
Rate, restaurants	5% of turnover	Rule 7, CGST Rules 2017
Returns	CMP-08 quarterly and GSTR-4 annually	Rule 62, CGST Rules 2017
Invoice requirement	Bill of supply, marked as a composition taxable person	Rule 5(1)(f), CGST Rules 2017

Not to be confused with

These get used interchangeably, including by tools that should know better. They are different things.

QRMP

QRMP is quarterly filing under the normal scheme, with input credit intact and tax charged to customers as usual. Composition changes the tax treatment itself.

Exemption

A composition dealer is registered and pays tax; they simply pay a flat rate out of margin instead of collecting it. An exempt supply carries no tax at all.

Questions people ask

Can I sell interstate under composition?

No. Making an interstate outward supply makes you ineligible, and the scheme has to be exited. You may still buy from other states.

What happens if I cross the limit mid-year?

Eligibility ends from the day the limit is crossed, and you move to the regular scheme from that date. Returns and invoicing change immediately, which is why turnover needs watching rather than checking in March.

What usually goes wrong

Choosing composition while selling to registered businesses, who then get no credit
Issuing a tax invoice instead of a bill of supply, which wrongly implies tax was charged
Making an interstate supply and staying in the scheme regardless
Assuming input credit can be claimed — under composition there is none, on anything